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GDP as a false measure of a country economic output

Note on the cult of GDP growth: "Growth for the sake of growth is the ideology of the cancer cell."

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I take note that the 'indicators' are usually based in numbers which, upon further inspection, are rosy at the very least. Indicators for main street activity is particularly bad and skewed. Greenspan was the genius behind this going back sometime ago, with beautiful headline numbers but when one took a look (if one could) you would find that much was left out.

So we are left, as the government is basically lying or misleading us, to try and figure it out. We speculate, we find others who have analytical skills to do what others of us cannot. We listen to the 'on the street views' of others. The faith in the methods behind decades of increasingly distorted headline numbers, particularly in the '90s, was like watching Jim Jones give a speech to his faithful, fully accepting for support of their own selfish motivations and endorphin-laden highs.

Nanoo-Nanoo in

Feldstein- House Prices to Fall Further

If you read “Barbarians at the Gate” what was most striking is that companies that get destroyed are PROFITABLE – but it is MORE profitable for a few to strip mine them. In the religion of economics, God has forgotten them… We use certain metrics that says this increases GDP, and therefore it MUST be done – like the character in Harry Potter whose name can never be uttered, we can never, ever speak of the distribution of the vaunted GDP. As I’ve said many times, inequality is a political choice. I fear our system has been so thoroughly infiltrated by the self absorbed that it is now impossible for any meaningful reform.

Above the law demi-god banksters (I call them financial terrorists) are re-creating the world in their own image. Thank Obama and Holder for placing them above the law.

Introduction

There are two distinct types of GDP: nominal and real

If a country becomes increasingly in debt, and spends large amounts of income servicing this debt this is not reflected in a decreased GDP. GDP does not take into account change in country population iether, but per-capita GDP accounts for population growth.

Citing Wikipedia

In economics, gross domestic product (GDP) is a measure of the value of economic production of a particular territory in financial capital terms during a specified period. It is one of the measures of national income and output. It is often seen as an indicator of the standard of living in a country, but there may be problems with this view. GDP is often abbreviated as Y.

GDP is defined as the total value of final goods and services produced within a territory during a specified period (or, if not specified, annually, so that "the UK GDP" is the UK's annual product). GDP differs from gross national product (GNP) in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.

Whereas nominal GDP refers to the total amount of money spent on GDP, real GDP adjusts this value for the effects of inflation in order to estimate the actual quantity of goods and services making up GDP. The former is sometimes called "money GDP," while the latter is termed "constant-price" or "inflation-corrected" GDP -- or "GDP in base-year prices" (where the base year is the reference year of the index used). See real vs. nominal in economics.

GDP measures only final goods and services, that is those goods and services that are consumed by their final user, and not used as an input into other goods.

Measuring intermediate goods and services would lead to double counting of economic activity within a country. This distinction also removes transfers between individuals and companies from GDP. For instance, buying a Renoir doesn't boost GDP by $20m. (If it did, buying and selling the same painting repeatedly to a gallery would imply great wealth rather than penury.)

Note that the Renoir purchase would affect the GDP figure, but not as a $20m receipt, the auctioneer's fees would appear in GDP as consumption expenditure, because this is a final service.

The most common approach to measuring and understanding GDP is the expenditure method:

GDP = consumption + investment + exports − imports

Consumption and investment in this equation are the expenditure on final goods and services. The exports minus imports part of the equation (often called net exports) then adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic production not consumed at home (the exports).

Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector spending. Two advantages of dividing total consumption this way in theoretical macroeconomics are:

Therefore GDP can be expressed as:

GDP = private consumption + government + investment + net exports
(or simply GDP = C + G + I + NX)

The components of GDP

Each of the variables C, I, G, and NX :

It is important to understand the meaning of each variable precisely in order to:

... ... ...

The GDP Income account

Another way of measuring GDP is to measure the total income payable in the GDP income accounts. This should provide the same figure as the expenditure method described above.

The formula for GDP measured using the income approach, called GDP(I), is:

GDP = Compensation of employees + Gross operating surplus + Gross mixed income + Taxes less subsidies on production and imports

The sum of COE, GOS and GMI is called total factor income, and measures the value of GDP at factor (basic) prices.The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the Government has levied or paid on that production. So adding taxes less subsidies on production and imports converts GDP at factor cost to GDP(I).

Kuznets warning

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

In 1962, Kuznets stated:

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

Continuing progress should not lead  to ever-escalating levels of consumption, but to a society where improving productivity and technology would provide higher quality goods, better health and more leisure. GDP never measured economic efficiency of the country; it measures the level of economic activity. Healthcare is a classic example. The USA spends 20% to subsidize maladaptive behavior between producers and consumers in the medical food chain.

In GDP the quantity is substituted for quality

The other problem with GDP, which the USA actually shares with the USSR is that quantity is substituted for quality. In other word GDP does not measure the quality of products sold or services provided (actually some country now include income from prostitution in GDP).

As Paul Krugman has pointed out, generally Europeans has better understanding of this problem with GDP then Americans and thus less susceptible to the "cult of GDP" which dominated the USA economic discourse. There are also other areas where Americans place too high priority on quantity sometimes in detriment to quality. For example, proliferation of "House slaves" is a classic  example of overconsumption. In this case overconsumption of housing as measured by size. It is highly negative phenomena, but it does increase GDP. 

Consumption as a status symbol is another similar phenomenon. The term Conspicuous consumption was coined by the US economist for a reason. This idea was further investigated by John Kenneth Galbraith in his famous book The Affluent Society

In GDP, the quantity is substituted for quality. Also calculation has political dimension and as a result American GDP figures are wildly distorted (hedonic adjustments, etc).

Also many components of GDP (especially FIRE -- finance, insurance and real estate) might be partially anti-social and their fast growth (which as services is reflected in GDP) might be detrimental for the health and prosperity of society. Jesus attitude toward bankers is well known and probably was not without the reason ;-)

Another example is sales of high sugar context flavored water called Coca Cola and Pepsi Cola. It is negatively affect children health leading to obesity and early diabetes, but it is positively reflected in GDP.

The same, even more drastic example is production of arms.

Well known problems with GDP

There are several well-known problem with GDP:

The cult of GDP

In a way the calculation of GDP became just a complex (and by-and-large counterproductive) ritual not unlike some religious rituals like calculation of certain dates. That's why we can talk about "Cult of GDP" as a religious phenomena.

This cult has mirror image in large corporate behavior. Both on the level of society and the level of large corporation if the metric is wrong, then the policy based on it is destructive.

It looks like "cult of GDP" which definitely represent dominant economic religion in the USA is very similar to the cult of GDP which existed in the USSR. And like in the USSR GDP is very misleading, politically distorted metric of economic well-being of the country. As Yves Smith observed in comments to Krugman on the Need for Jobs Policies

American GDP figures are wildly distorted, this has never gotten the press it deserves. The US is the ONLY economy that uses hedonic adjustments to GDP. That means it increases GDP to allow for the fact that computers have become more productive over time (this is completely different than the hedonic adjustments for inflation, BTW).

A modern desktop computer is about as powerful as a mainframe as of late 1980s. So I kid you not, these adjustments started in 1987, and they count your desktop in GDP as the same value what the equivalent big iron computer would have cost in 1987. Mish managed to get the BEA to send him a spreadsheet in 2005, and it showed the cumulative impact was 22% of GDP. This is far and away the most dubious of the official statistical adjustments, and gets far and away the least commentary.

The Bundesbank has also complained a few years ago that if German calculated GDP the way the US did, it’s growth rate would be a half a percent higher. If you take the Bundesbank figure instead, and calculate GDP growth over 22 years, using 2.5% versus 3.0% growth, you get an 11% cumulative difference.

Tail wags the dog: effects of GDP calculation

There is other, more dangerous aspect of GDP is that tail wags the dog -- it implicitly stimulated counter-productive behavior of government and its major economic agents in order to boost GDP. In a recent article by Samuel Brittan (Financial Times) put it very well:

A typical talk on BBC’s Radio Three might start by bemoaning the consumer society, with its passion for shopping and the rush to make pointless purchases. It might then bemoan the nervous strain in the quest for economic growth and the lack of time or energy for more worthwhile activities.

But then comes a more interesting twist. All this frenzy of pointless activity is required, it is said, to keep the economy going. Without it, the implication is, production would dry up and jobs disappear, and we would wallow in semi-permanent depression.

The contention is that the economy would collapse if we ceased to demand more and more, a belief sometimes called the saturation bogey. Many practical businessmen, who have no time or inclination for political economy, suppose that we must go on churning out more and more to survive, whether or not we enjoy the process. The US president Calvin Coolidge remarked in 1926: “The chief business of the American people is business.” UK politicians used to ask what would happen when every family in the country had two cars.

The clue to the whole matter is provided, as so often, by a dictum from Adam Smith: “Consumption is the sole end and purpose of production; and the interests of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” To demonstrate the falsity of the belief that we must continue to feed the productive machine with ever more ridiculous demands, let me indulge in a brief thought experiment.

Let us take a medium-sized, western economy with no major population change and negligible net migration or other problems. What might then happen if a majority of people were to turn their backs on further improvements in their real spending? The basic answer is that, in this no-growth new world, people could enjoy the fruits of technological progress with a mixture of increased leisure and a more congenial and relaxed working life. The reduction in labor input would be voluntary and completely different from what happens in an economic slump.

Some political economists have looked forward to this state of affairs. John Stuart Mill regarded what he called the “stationary state” as a delight rather than a disaster. He could not believe that the perpetual struggle to get on and elbow other people out of the way was other than a temporary phase in humanity’s progress. Keynes also looked forward to such a world (in his essay “Economic Possibilities for our Grandchildren”) when “we shall honor the delightful people who are capable of taking direct enjoyment in things: the lilies of the field who toil not, neither do they spin.” He allowed for the persistence of a minority of people who would feel satisfaction only if their behavior made them feel superior to their fellows, “but the rest of us would no longer feel under any obligation to applaud”.

There is another view, stated most eloquently by Joseph Schumpeter. As he put it: “Capitalism is by nature a form or method of economic change and not only never is, but never can be, stationary.”

Let us concede at once that the resulting system would not look much like capitalism as we know it. But even in such a society there would be great advantages in retaining competitive markets based on private ownership. Those who have now, belatedly, discovered Schumpeter and quote him out of context do not realise that, writing in the 1940s, he expected entrepreneurial capitalism to have died out long ago and be replaced by some variant of state socialism. He failed to see how unworkable the latter would be. Like many other seers he was an excellent analyst, but a poor prophet.

As soon as we add more realistic conditions, the saturation bogey becomes more and more remote. Even if demand for conventional consumer goods were to peak, there might still be demand for more public services and more expenditure to relieve poverty at home and abroad. Most western countries are likely to see net immigration for the foreseeable future, which would bring with it opportunities for new investment without any need for whipping up artificial needs and anxieties. This is not to speak of devoting a margin of extra production to dealing with environmental threats, whether or not of a global warming variety.

GDI vs GDP: usage of GDI to check if GDP is fudged

But there’s a second way to count how much we produced -- GDI, or Gross Domestic Income. It’s what we got paid to produce the GDP. We break-up GDI according to the type of income being paid and to whom. Roughly it’s wages, profits, interest, and taxes.

If we assume that income = spending then GDI should be equal to GDP. It’s an after-the-fact necessity of the accounting framework by definition. But it’s also a useful concept for analysis of disequilibrium and dynamics. After all, think of what happens in the following scenario. Suppose every month we spend $1000 and we get paid $1000. Income = spending.

But suppose some month, income declines unexpectedly to $900. In the month the income declines, we either cut our spending short to adjust to the new lower income, or we borrow (or spend from accumulated financial assets) to make up for the shortfall and adjust our spending the following month. In this scenario, we can identify that when income from productive sources = spending we have an equilibrium in the economy and no changes are expected. But if income is less, then we are at a disequilibrium and can expect changes.

Here are two articles that discuss this subject further, but the idea is that GDI can be used for checking GDP number produced for fudging.

GDP and GDI two sides of the same inevitably-flawed coin FT Alphaville
Cardiff Garcia

A couple of years ago, we did a long Q&A with Fed staff economist Jeremy Nalewaik about his work on the differences between Gross Domestic Product and Gross Domestic Income.

The two indicators, as you would expect given their theoretical sameness, tend to be nearly identical over a long enough stretch of time. GDI is interesting mainly because Nalewaik had found that its early estimates tend to be revised less over time than are initial estimates of GDP.

In English, this suggests that GDI is a more accurate early measure.

And it was worth noting because in the burgeoning stages of the Great Recession, the early GDP estimates dramatically understated the severity of the US economy’s decline. Had more people been paying attention to GDI, which was flashing warning signs earlier, the policy response might have come sooner and been more aggressive.

On Thursday morning, GDI for the fourth quarter of last year was revised from an annualised 2.6 per cent to a whopping 5.5 per cent, while GDP growth for the same quarter stayed at 0.4 per cent. Quite a divergence.

Yet both GDP and GDI now report the exact same growth rate for the full-years 2011 and 2012 — 1.8 per cent and 2.2 per cent respectively.

And if you look closely at Thursday’s release (Appendix Table A), during those two years you’ll notice bigger quarterly swings in GDI, swings that have corresponded roughly with the winter booms and spring swoons that some other economic indicators have also shown. If you further look at the excel spreadsheet that pops up when clicking on this BEA link, you’ll see that GDI itself since that time has been no stranger to large revisions later.

Nalewaik himself emphasised that some weighted average of GDP and GDI is preferable to using only GDI. And reporting wider swings also seems to apply for GDI over longer stretches of time — ie after plenty of revisions — as you can see in this chart from Tim Duy:

The trends essentially smoothen out to show the same thing.

We in the blogosphere make a lot of hay about the likelihood that early releases of any given indicator are likely to be revised over time. Certainly we do this with the employment reports. But to change our tune a bit on the matter of GDP vs GDI, over a long enough period of time the difference isn’t that big a deal — and over shorter periods of time, neither is all that reliable. As such, an average of the two really is probably best.

A lot of attention has been given to methodological issues with the inputs that generate growth statistics these past couple of years; for instance the difficulty of properly accounting for services in an economy that is increasingly dominated by them (try page 52 of last year’s Economic Report of the President).

It’s great news, of course, that the individual components of GDP are getting increased attention, and indeed GDP itself is getting a fairly big makeover this summer when R&D will be capitalised and certain other intangible assets will be counted differently.

The added attention and changes should also remind us that, as Karl Smith has been playfully harrassing us to acknowledge for a while now, GDP and GDI are just the outputs of methodological processes. They’re numbers, sums.

But in an economy with relatively transparent indicators like those in the US, there’s no reason that commentators can’t just go straight to the individual components to look for underlying trends — especially since these components are of varying relevance at different times. For one example, consider the decline in defense spending of the kind that is predictable and normal when winding down a war; it contributes to GDP but might say less about fundamental economic strength than, say, changes in consumer behaviour.

This isn’t an argument that the final number should be ignored. It shouldn’t: for people who don’t spend their lives reading economics blogs, it is still an easily accessible way to discuss what’s happening, even if the media should always include the caveat about future revisions. (We’re also a paid-up member of NGDPLTargeting, and we’re gonna need something to target!)

But for purposes of discussing in detail the health of the economy, it’s better to pick things apart. That’s not as easy as pointing to a single number, but nobody said real-time economy-watching was supposed to be easy.

This entry was posted by Cardiff Garcia on Thursday May 30th, 2013 21:36. Tagged with GDI, GDP.

A more accurate measure of economic output by Mark Thoma

"...GDI is identical to GDP in theory. Money used to purchase goods and services becomes someone's income in one way or another. But GDI differs in practice due to the way the national income and product accounts are constructed."
"...The first new measure, called gross domestic output (GDO), is now published by the Bureau of Economic Analysis. It's simply the average of GDP and GDI. Adjusted for inflation, here is how it compares to GDP:"
"..."the simple average -- what we have called GDO -- of the initial estimates historically has been a better gauge of the latest and presumably most accurate estimates of GDP growth than either GDP or GDI individually as well as a more stable predictor of future economic growth. Moreover, using GDO helps at least partially to resolve some recent economic anomalies. As a result, GDO offers a valuable new source of information for households, businesses, researchers, and policymakers seeking to understand economic issues in real time.""
"...However, while both GDO and GDPplus improve on using GDP or GDI alone, neither alternative overcomes all the problems with GDP and GDI, particularly the lag of several months before data on GDP and GDI first become available. In addition, it can be as long as several years before all the important data revisions are completed, and forecasts beyond a quarter or two ahead are unreliable"
CBS News
How well is the U.S. economy doing, and where might it be heading in the future?

To answer these questions, we need a way to assess the total amount of goods and services the economy is producing in a given time period. One measure of this quantity, gross domestic product (GDP) is well known. It estimates the total value of new goods and services produced in the U.S. over a given period, usually a quarter or a year. (Also, the goods must pass through organized markets, so black market activity and goods produced in homes aren't counted.)

However, there's another way to arrive at this estimate of total economic activity: gross domestic income (GDI).

GDI is identical to GDP in theory. Money used to purchase goods and services becomes someone's income in one way or another. But GDI differs in practice due to the way the national income and product accounts are constructed.

Thus, because neither measure is perfect on its own, and the errors in GDP and GDI are largely independent, it should be possible to combine the two measures to improve our estimate of how well the economy is performing in a given time period. That's what two recent strands of research are attempting to do.

The first new measure, called gross domestic output (GDO), is now published by the Bureau of Economic Analysis. It's simply the average of GDP and GDI. Adjusted for inflation, here is how it compares to GDP:

GDO

The graph is from a recent Issue Brief published by the Council of Economic Advisors. It discusses this new measure and notes that

"the simple average -- what we have called GDO -- of the initial estimates historically has been a better gauge of the latest and presumably most accurate estimates of GDP growth than either GDP or GDI individually as well as a more stable predictor of future economic growth. Moreover, using GDO helps at least partially to resolve some recent economic anomalies. As a result, GDO offers a valuable new source of information for households, businesses, researchers, and policymakers seeking to understand economic issues in real time."

The second new measure, called GDPplus, is an optimally weighted combination of GDP and GDI, with weights that are allowed to evolve over time.

This measure, which is available from the Philadelphia Fed, has some technical advantages over the simple average discussed above. However, while both GDO and GDPplus improve on using GDP or GDI alone, neither alternative overcomes all the problems with GDP and GDI, particularly the lag of several months before data on GDP and GDI first become available. In addition, it can be as long as several years before all the important data revisions are completed, and forecasts beyond a quarter or two ahead are unreliable. However, GDPplus, unlike GDO, can be calculated even if only one of GDP or GDI is available.

Thus, the best approach to characterizing how well the economy is performing at a moment in time, and how well it's likely to do in the future, is to use a measure such as GDPplus in combination with other windows into the state of the economy such as the unemployment rate, industrial production, consumption, investment and so on.

Conclusions

This preliminary observations suggest that GDP is a too broad and thus questionable measure of economic growth. As such it should not be absolutized as the sole metric of the economy growth. Such usage in many respects simply contradict common sense. In a way the calculation of GDP became just a complex (and by-and-large counterproductive) ritual not unlike some religious rituals like calculation of certain dates. That's why we can talk about "Cult of GDP" as a religious phenomena.

It does not necessary correlates with well-being of the people as the term "jobless recovery" implies: for most working people any period of slow growth is not that different from recession. See Olivier Vaury, Is GDP a good measure of economic progress, Post-Autistic Economics Review, issue 20 . Recently there was an interesting new evidence that suggests that shifting production overseas has inflicted additional damage on the U.S. economy by creating "phantom GDP"

BusinessWeek's analysis of the import price data reveals offshoring to low-cost countries is in fact creating "phantom GDP" -- reported gains in GDP that don't correspond to any actual domestic production. The only question is the magnitude of the disconnect. "There's something real here, but we don't know how much," says J. Steven Landefeld, director of the Bureau of Economic Analysis (BEA), which puts together the GDP figures. Adds Matthew J. Slaughter, an economist at the Amos Tuck School of Business at Dartmouth College who until last February was on President George W. Bush's Council of Economic Advisers: "There are potentially big implications. I worry about how pervasive this is."

By BusinessWeek's admittedly rough estimate, offshoring may have created about $66 billion in phantom GDP gains since 2003 (page 31). That would lower real GDP today by about half of 1%, which is substantial but not huge. But put another way, $66 billion would wipe out as much as 40% of the gains in manufacturing output over the same period.

It's important to emphasize the tenuousness of this calculation. In particular, it required BusinessWeek to make assumptions about the size of the cost savings from offshoring, information the government doesn't even collect.

GETTING WORSE

As a result, the actual size of phantom GDP could be a lot larger, or perhaps smaller. This estimate mainly focuses on the shift of manufacturing overseas. But phantom GDP can be created by the introduction of innovative new imported products or by the offshoring of research and development, design, and services as well--and there aren't enough data in those areas to take a stab at a calculation. "As these [low-cost] countries move up the value chain, the problem becomes worse and worse," says Jerry A. Hausman, a top economist at Massachusetts Institute of Technology. "You've put your finger on a real problem."

Alternatively, as Landefeld notes, the size of the overstatement could be smaller. One possible offset: Machinery and high-tech equipment shipped directly to businesses from foreign suppliers may generate less phantom GDP, just because of the way the numbers are constructed.

... ... ...

Phantom GDP can also be created in import-dependent industries with fast product cycles, because the import price statistics can't keep up with the rapid pace of change. And it can happen when foreign suppliers take on tasks such as product design without raising the price. That's an effective cost cut for the American purchaser, but the folks at the BLS have no way of picking it up.

The effects of phantom GDP seem to be mostly concentrated in the past three years, when offshoring has accelerated. Indeed, the first time the term appeared in BusinessWeek was in 2003. Before then, China and India in particular were much smaller exporters to the U.S.

The one area where phantom GDP may have made an earlier appearance is information technology. Outsourcing of production to Asia really took hold in the late 1990s, after the Information Technology Agreement of 1997 sharply cut the duties on IT equipment. "At least a portion of the productivity improvement in the late 1990s ought to be attributed to falling import prices," says Feenstra of UC Davis, who along with Slaughter and two other co-authors has been examining this question.

What does phantom GDP mean for policymakers? For one thing, it calls into question the economic statistics that the Federal Reserve uses to guide monetary policy. If domestic productivity growth has been overstated for the past few years, that suggests the nation's long-term sustainable growth rate may be lower than thought, and the Fed may have less leeway to cut rates.

In terms of trade policy, the new perspective suggests the U.S. may have a worse competitiveness problem than most people realized. It was easy to downplay the huge trade deficit as long as it seemed as though domestic growth was strong. But if the import boom is actually creating only a facade of growth, that's a different story. This lends more credence to corporate leaders such as CEO John Chambers of Cisco Systems Inc. (CSCO ) who have publicly worried about U.S. competitiveness--and who perhaps coincidentally have been the ones leading the charge offshore.

In a broader sense, though, the problem with the statistics reveals that the conventional nation-centric view of the U.S. economy is completely obsolete. Nowadays we live in a world where tightly integrated supply chains are a reality.

For that reason, Landefeld of the BEA suggests perhaps part of the cost cuts from offshoring are being appropriately picked up in GDP. In some cases, intangible activities such as R&D and design of a new product or service take place in the U.S. even though the production work is done overseas. Then it may make sense for the gains in productivity in the supply chain to be booked to this country. Says Landefeld: "The companies do own those profits." Still, counters Houseman, "it doesn't represent a more efficient production of things made in this country."

What Landefeld and Houseman can agree on is that the rush of globalization has brought about a fundamental change in the U.S. economy. This is why the methods for measuring the economy need to change, too.

The arguments presented above cast doubt on the usefulness of GDP as the main “pilot” of economic policy. If the thermometer is wrong, then the policy based on it should be wrong too. Also people are very adaptable and if some numeric scale became an official goal. people demonstrate tremendous ability to abuse any numeric scales of measurement both by fraud and by corruption of the initial goals and purpose of the measurement.

But even if we assume the GDP is a useful metric there are some concerns about the validity of the official figures: Ronald R. Cooke in his editorial American GDP published 01-17-2008 at Financial Sense noted:

In another life (circa 1962), I was an auditor for AT&T. Nothing spectacular. Mostly cash and property reviews. Then some business process analysis. It was my good fortune to have two older gentlemen as partners. They graciously decided to teach this green college kid how to be a good auditor. It was a great learning experience. One of the tricks they taught me was called the “reasonable test”. If the data under audit was within the parameters of like data from other audits, then it was reasonable to assume there were no problems of procedure or management. If, on the other hand, the data did not seem to make sense versus circumstantial criteria, then it would be reasonable to assume further audit investigation was warranted. This technique of measuring the quality of information has become a cornerstone of my work ever since.

In early November, 2007, the Commerce Department’s Bureau of Economic Analysis (BEA) announced the United States had achieved a third quarter Gross Domestic Product (GDP) of 3.9 percent. That number was later updated to 4.9 percent. Those numbers set off my “reasonable test” alarm. How, I wondered, with an accelerating rate of inflation and declining economic activity, could the United States turn in such a stellar performance?

The BEA’s report flunked the reasonable test.

GDP

The BEA reported American GDP in billions of Current Dollars (the money we actually spent for goods and services) for Q3 2006 and Q3 2007. It also reported this same data adjusted for inflation using “chained” 2000 dollars. As of December 20, 2007, the quarterly data, using seasonally adjusted annual rates for the National Domestic accounts, yields the Current-Dollar and “Real” Gross Domestic Product data shown in the following Table. It shows that annual GDP growth in current dollars grew from 4.53% in Q1 2007 to 5.30% in Q3 2007. Using inflation adjusted chained 2000 dollars, economic growth grew from 1.55% in Q1 2007 to 2.84% in Q3. Not bad.

But wait. Does this imply an inflation differential of only 2.46% for Q3? And do we really believe the inflation differential actually declined from 2.98% in Q1 to 2.46% in Q3? Didn’t the value of the dollar decline over these three quarters?

GDP in billions of current dollars

% Change from year ago quarter

GDP in billions of chained 2000 dollars

% Change from year ago quarter

Inflation Differential

2007q1

13,551.9

4.53%

11,412.6

1.55%

2.98%

2007q2

13,768.8

4.67%

11,520.1

1.89%

2.78%

2007q3

13,970.5

2.84%

2.46%

The BEA’s Price Index for Gross Domestic Purchases (which measured prices paid by U S. residents) increased by just 1.8% in Q3. By contrast, the Labor Department’s Bureau of Labor Statistics (BLS) CPI-U inflation index was 2.36% for this same period. Which number is a better measure of inflation? Can we trust either number?

And to further compound the confusion, the BEA has reported a current dollar gain of 6.0% for Q3. BUT this is against average GDP for all of 2006, rather than a comparison of Q3 2006 vs. Q3 2007.

Collecting the copious amounts of data used to compute GDP has to be a tedious and sometimes frustrating job. Unfortunately, sophisticated analysis and hard work does not guarantee credible results. The BEA’s conclusions appear to be a bit optimistic.

Simple Net GDP Calculation

Pundits frequently ignore current dollar GDP (the total production of goods and services priced as though they were purchased with current dollars). Instead they use a number that has been adjusted downward called “Real” GDP that deducts the rate of inflation and makes other adjustments to current dollar GDP in an attempt to compare GDP from one period, with the GDP for a subsequent period, using dollars of a constant value .

I dislike the term “Real” GDP. There is nothing sacred about using inflation adjusted dollars as a measure of economic performance. Current dollar GDP is just as “real” as any other measure of value and provides a useful way to compare multiple sets of data from period to period. We should remember. Consumers can not spend inflation adjusted dollars to purchase goods and services. They can only pay their bills with the money that is actually in their pocket – current dollars. So .. if we want to adjust current dollar GDP for inflation, then let us do just that … and call it “Net” GDP. In other words, Net GDP is the percentage increase (or decrease) in current dollar GDP for a specified period vs. the current dollar GDP of a like prior period, less the rate of inflation from the prior period to the specified period. In the following example, seasonally adjusted current dollar GDP increased from $13,266.9 billion in Q3 2006, to 13,970.5 billion in Q3 2007 – an increase of 5.30%. The BLS reported a seasonally adjusted price index increase of 2.36% for these same two periods. If we subtract the BLS CPI from BEA current dollar GDP, that gives us a net increase in GDP of 2.94% from Q3 2006 to Q3 2007, - far less than the GDP gain of 4.9% reported by the BEA.

BEA Q3 2007 GDP Growth in Current Dollars from Q3 2006

5.30%

Increase of Q3 2007 GDP vs. Q3 2006 GDP

BLS CPI-U Q3 2006 vs. Q3 2007

2.36%

Deduct Q3 2007 Rate of Inflation

Net GDP

2.94%

Net GDP

If we take the BEA seasonally adjusted quarterly current dollar Gross Domestic Product percent change for Q3 2007, and compare it with this same data adjusted for chained 2000 dollars, the “inflation” differential is only 1.1 % even though the BEA price index was 1.8. In addition, note that while real world food and fuel prices have been going up, the inflation differential has been going down.

How is this possible?

BEA GDP Data

10/29/2007

GDP percent change based on current dollars

GDP percent change based on chained 2000 dollars

Inflation Differential

2007q1

4.9

0.6

4.3

2007q2

6.6

3.8

2.8

2007q3

6.0

4.9

1.1

If you go to www.tce.name and click on the Cultural Economics tab, you will see my essay of the rate of inflation: “CPI: Sophisticated Economic Theory, Terrible Ethics”. To quote from that essay: “If we use the weighting and data points from the above factoids to calculate an alternative estimate of CPI (the Consumer Price Index), we get a very different picture of American inflation from Q3 2006 to Q3 2007. There is a dramatic increase in food and housing costs. …... Granted.

Accuracy would require the acquisition and analysis of a lot more data than assembled for this effort. But the large discrepancy suggests something is wrong with either the survey methodology or the process of analysis. Whereas the BLS reported a CPI increase of 2.36% for this period, the actual rate of inflation was more like 4.02%.”

Ok. I like my economics simple, uncluttered, and straight. Assuming the credibility of the BEA current dollar estimates, let’s deduct my alternative CPI from the BEA data to estimate economic performance.

BEA Q3 2007 vs. Q3 2006 GDP in Current Dollars

5.30%

TCE CPI-U Q3 2007 vs. Q3 2006 Dollar value inflation

4.02%

“Net” increase in Q3 2007 GDP

1.28%

Using this methodology, could one conclude America’s economy posted a modest performance in Q3 2007? And by the way:

which number reflects contemporaneous comments on the economy:
the 4.9% gain in GDP reported by the BEA, or the above estimate of 1.26%?

... ... ...

Conclusion

GDP is one of the most closely watched economic statistics: It is used by the White House and Congress to prepare the Federal budget, by the Federal Reserve to formulate monetary policy, by Wall Street and the media as an indicator of economic activity, and by the business community to prepare forecasts of production, investment, and employment. Because of its extremely sensitive business and political ramifications, reported GDP (current or chained) needs to be accurate, unambiguous, and trustworthy.

And this brings up an interesting point. One of the issues in this election cycle is trust. Can we trust the information we receive from the Federal Government? Congress? The Administration? Federal agencies? Aside from outright falsification, and intentional or intrinsic bias, data and information can be rendered untrustworthy by establishing a misdirected premise for the methodology or by overly sophisticated manipulation.

Hopefully, we will elect a management team in November that has the ability to review our measurement objectives and the analytical processes used to achieve them. In other words:

In God We Trust. All others need an occasional audit.

The USSR example suggests that the most dangerous aspect of GDP is "tail wags the dog" effect -- it implicitly stimulated maladaptive, counter-productive behavior of government and its major economic agents. The term for the USSR was "phantom GDP" and now it applies to the USA to the full extent possible. For example offshoring may have created about $66 billion in phantom GDP gains since 2003 . A lot of phantom GDP was also created in import-dependent industries. Accounting at large multinationals is as distorted as in the USSR to the extent that some parts of profits are completely fictional (writing down as research many non-research activities is a one popular trick). The danger amplifies when individual firms adopt questionable metrics like "maximizing shareholder value" as capitalism is by nature a dynamic economic force what seeks change and became destructive if corporate goals for such a change are misaligned with the larger society. In other words "maximizing shareholder value" implicitly presuppose minimizing societal value and responsibility. One telling example is the emergence of "blockbuster" drags, like all those cholesterol lowering drags, painkillers and recreational drugs like Viagra in big pharma.

There is also a more generic problem with one dimensional metrics of economic performance that USSR was first to demonstrate to the world. People are very adaptable and if some numeric scale became an official goal they demonstrate tremendous ability to abuse this metric both by fraud and by corruption of controlling organizations defeating the initial goals and purpose of the measurement. So "maximizing shareholder value" paradoxically might be the best way to destroy any traces of honest accounting and honest auditors :-).

This interesting phenomena when numbers are bended to provide justification to particular ideology, which is the USSR was called Lysenkoism, was independently rediscovered in the USA by the name of "numbers racket".

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Old News ;-)

[Mar 14, 2021] GDP growth as a new fetish

Mar 14, 2021 | www.zerohedge.com

For decades, governments and central banks have always identified the problems of the economy as demand problems, even if it was not the case . If there was a crisis or a recession, governments immediately believed that it must be due to lack of demand, and subsequently decide that the private sector is not willing or able to fulfill the real demand needs of the economy, even if there was no real evidence that companies or citizens were investing or consuming less than what they needed. T he entire premise was that companies were not investing "enough". Compared to what and decide by whom? Obviously by central planners who benefit from bubbles and overcapacity but never suffer the consequences.

Governments and central banks never perceive risks of excess supply and even less predict a bubble. Why? Because most central planners see debt, oversupply, and bubbles as small collateral damages of a greater good: recover growth at any cost.

Behind the mistake in diagnosis is the obsession to maintain or grow Gross Domestic Product (GDP) at any cost regardless of the quality of its components. GDP is relatively easy to inflate. I always explain to my students that GDP is the only economic calculation in which you add what you spend with what you earn. GDP can be inflated through government spending and with higher debt-fueled expenditures. Debt is not a problem when it serves its purpose, which is to finance productive investment and allow the economy to grow, while efficiency, innovation, and technology allow us to be more productive and receive more and better goods and services at cheaper prices. It is a virtuous cycle.

The virtuous cycle of credit turns into a vicious cycle of unproductive debt when we incentivize malinvestment and prevent technology substitution by implementing massive government stimuli and liquidity injections.

[Feb 21, 2021] The GDP is a massively false paradigm. Much of it is comprised of non-productive (parasitical) economic "activity

Feb 21, 2021 | www.unz.com

Majority of One , says: February 15, 2021 at 5:42 pm GMT • 4.5 days ago

@Chinaman me obsolescent with the disappearance of home-ec from our high schools. Economy means to economize, to save and to make do. Credit cards in hand, suburban Americans spend like drunken Irish sailors on shore leave.

BTW Chinaman: Those you apparently consider as deplorable, are the ones who do the actual, real productive work. Most of the rest of employed Americans are keystrokers and button-pushers, ordered around by governmental administrators and corporate bureaucrats. Squatting atop the economic scrotumpole are various types of parasites, include coupon-clipper sons of riches and those who get their ill-gotten gains from the FIRE sector: Finance, Insurance and Real Estate speculation.

Wake up and smell the coffee...

[Jan 04, 2021] Around 46% of US GDP consists of financial manipulation in the FIRE sector, while the FIRE sector in China is only 4% of the Chinese economy.

Jan 04, 2021 | www.moonofalabama.org

Dr. George W Oprisko , Jan 4 2021 3:05 utc | 63

Note: since the Chinese working class' average wage has been doubling in real terms every ten years since the CPC took over, I'm assuming you're talking about the victimization of the American working class only (specially, but not only, the white working class from the Rust Belt).

Some math.....

From US Census Data...
Total US Population = 331,002,651
Average US Per Capita Income (USD 2019) = $35,977.
From World Odometer
Population of China = 1,442,055,798
Chinese Per Capita Income (USD - 2020) = $10,276

US Population X Per Cap Income = 11.9 USD$(trillions) = 54% of US - GDP
PRC population X Per Cap Income = 14.8 USD$(trillions) = 96% of PRC - GDP

By this metric......
Chinese Main Street GDP is 124% of USA Main Street GDP

This means that 46% of US GDP consists of financial manipulation in the FIRE sector, while the FIRE sector in China is only 4% of the Chinese economy.

INDY

[Nov 16, 2020] Four More Years Of by Andrew Joyce

Highly recommended!
There are two different things here. Trump betrayal of his voters is one thing, but election fraud is another and is unacceptable no matter what is your opinion about Trump. We should not mix those two topics.
Notable quotes:
"... Anarchy and Christianity ..."
"... Le meutre d'un enfant ..."
"... homo economicus ..."
"... Washington Post ..."
Nov 16, 2020 | www.unz.com
ANDREW JOYCE NOVEMBER 14, 2020 3,100 WORDS 77 COMMENTS REPLY Tweet Reddit Share Share Email Print More RSS

All our political forms are exhausted and practically nonexistent. Our parliamentary system and electoral system and our political parties are just as futile as dictatorships are intolerable. Nothing is left. And this nothing is increasingly aggressive, totalitarian and omnipresent.
Jacques Ellul, Anarchy and Christianity (1991)

Look at them! Look at them, will you? Behold our politicians' horrible languid maws!; the courtier-like faces of department managers. They are indeed salesmen, for the very power of nations is measure in relation to their own mercantile activity.
Jean Cau, Le meutre d'un enfant (1965)

"What's going to happen now?" I was asked earlier today. "Nothing and everything," I replied. Immigration, largely unchallenged and unscathed (excepting the incidental impact of COVID-19 on population movement) from four years of Trumpism, will now continue to accelerate unabated . Zionism will continue to enjoy the expansion of American institutional and military support, this time with the blood interest of Jared Kushner replaced with the Jewish spouses of all three of Biden's children. And the momentary Obama-era delusion of a post-racial America will continue to dissolve in the reality of the increasing awareness and importance of race throughout the West, not solely as a result of mass migration but also of the increasing ubiquity of the ideologies of racial grievance and revenge. There will, of course, be a dramatic change for the worse in tone and spirit, and some smaller legislative victories like the banning of federal anti-racism training will likely soon be reversed. The defeat of Donald Trump is also hugely demoralizing to many decent American people, and emboldening to their bitterest enemies. This is to be sorely regretted. But it is in the shared qualities of Trump and Biden, rather than the election and sham ballots, that the real nature of our political systems and their future can be perceived. And it is in these shared qualities that our true problems lie.

Parliamentary electoral democracy is merely a representation of the general system in which it operates. Slavoj Zizek comments:

At the empirical level, of course, multi-party liberal democracy "represents" -- mirrors, registers, measures -- the quantitative dispersal of different opinions of the people, what they think about the proposed programs of the parties and about their candidates, etc. However, prior to this empirical level and in a much more radical sense, the very form of multi-party liberal democracy "represents" -- instantiates -- a certain vision of society, politics, and the role of the individuals in it: politics is organized in parties that compete through elections to exert control over the state legislative and executive apparatus, etc. One should always be aware that this frame is never neutral, insofar as it privileges certain values and practices.

The truth of the system, in terms of its non-negotiable aspects, is thus revealed in the "values and practices" privileged and ring-fenced under both Trump and Biden. What are these non-negotiables? Zionism, GloboHomo ideological capitalism and its "woke" leftist correlates, and the neoliberal promotion of GDP as the benchmark of human success and happiness.

Zionism

Jews have little to fear from a Biden presidency, which is presumably why Haaretz is claiming that the "American Jewish vote clinched Biden's victory and Trump's ouster. American Jews decided the outcome of the U.S. elections." Donald Trump might have been hailed as the "most pro-Israel President in U.S. history," but Jews are notoriously unreliable in their partnerships with non-Jewish elites. Fate, it must be said, has not been kind to those gentile elites that have exhausted their usefulness to Jews. And Trump is surely exhausted, having spent a busy four years fighting for Jews in Israel and in the United States. He reversed long-standing US policies on several critical security, diplomatic and political issues to Israel's favour, including the Iran nuclear accord, the treatment of Israel at the UN, and the status of Jerusalem and the Golan Heights. In December 2019, he announced his Executive Order on Combatting Anti-Semitism , promising to fight "the rise of anti-Semitism and anti-Semitic incidents in the United States and around the world." One wonders what else he could possibly have done for these people -- apart from a war with Iran -- a question that appears to have been answered by Jews with a resounding "Nothing." One can only imagine Trump's facial expression on seeing Benjamin Netanyahu's emphatic congratulations to Joe Biden, punctuated with the loving refrain: "I have a personal, long and warm connection with Joe Biden for nearly 40 years, and I know him to be a great friend of the State of Israel."

Biden and Harris, replete with their immediate familial ties to Jews, are viewed in Zionist circles as being at least as reliable as Trump, although not as exuberant and bullish. Biden has been known as a staunch supporter of Israel throughout his 36 years in the Senate, often cites his 1973 encounter with then-Prime Minister Golda Meir as "one of the most consequential meetings" of his life, and has on more than one occasion regaled audiences with a tale about his father telling him that "You don't need to be a Jew to be a Zionist." While some modifications are likely in the American approach to Iran, few reversals are expected on Trump's four years of pro-Israel activism. Biden, for example, has weakly criticized moving the embassy to Jerusalem but said he would not pull it back to Tel Aviv. Michael Herzog at Haaretz describes both Biden and Harris as "traditional Democrats, with a fundamental commitment to Israel whose roots are in part emotional in nature (in contrast to Obama)."

The change in relationship between America and Israel will be, in meaningful terms, restricted to the personal. Netanyahu, for all his fawning, is likely to undergo a personal demotion of sorts, with David Halbfinger of the New York Times pointing out that we can expect a Biden presidency to diminish Netanyahu's "stature on the global stage and undercut his argument to restive Israeli voters that he remains their indispensable leader." Palestinian leaders, probably the best-positioned to offer a perspective on the potential for an improvement in their condition under the new presidency, have been sombre to say the least. Hanan Ashrawi, a senior PLO official, responded to the question if she expected United States policy to continue tilting heavily in Israel's favor: "I don't think we're so naïve as to see Biden as our savior." Contrast this with the cheerfulness and confidence of Israel settlers who have grown accustomed to the perennial nature of American support for Zionism. David Elhayani, head of the Yesha Council, an umbrella for Jewish settlements in the West Bank, said the party of the U.S. president ultimately doesn't matter so long as the baseline commitment to support Israel persists: "Under Obama, we built more [settlement] houses than we have under Trump I think Biden is a friend of Israel."

The fact that the grassroots of the Democratic Party are drifting away from Zionism is no more consequential than the fact the grassroots of the Republican Party wanted major action on immigration reform. The former, like the latter, have been equally ignored by the real power brokers and influencers. Regardless of the radical appearance of Democrat-affiliated movements like Black Lives Matter, the fact remains that all of the leftist aggression and rhetoric of the summer of 2020 has resulted in the putative election of an establishment Zionist and political pragmatist who is sure to execute a more or less formulaic neoliberal scheme for government. In one sense, the bland, forgetful, and familiar Biden, who lacks any hint of genuine or novel ideology and was elected purely as a symbol of "not Trump," is the fitting response to Trump, who was equally devoid of ideological sincerity or complexity beyond the symbolism of "not Establishment." And so, while the media proclaims, as Heraclitus, that "all is in flux," from a different perspective we could argue, like Parmenides, the opposite -- "there is no motion at all."

GloboHomo

If I retain one abiding, surreal, memory of the Trump presidency in the years ahead it will be the Don dancing to the Village People in the wake of his numerous drives to legalize homosexuality in various African backwaters. That the Red State Christians comprising so much of his base could maintain their self-adopted blind spot on this issue is a remarkable testament to the power of personality, because no world leader in history has done more in recent history than Donald Trump to export what E. Michael Jones has so aptly termed "the Gay Disco" -- the double-barrelled shotgun of unbridled finance capitalism and the superficial freedom of sexual "liberty." As the pastors and preachers of South Carolina and Texas urged their huddled congregations to pray for the President, Trump was busy dispatching new missionaries, like U.S. Ambassador to Germany Richard Grenell, to the corners of the earth in search of converts to the Church of GloboHomo.

In February 2019, the U.S. embassy indulged in some nostalgia for Weimar when it flew LGBT activists from across Europe to Berlin for a strategy dinner to plan to push for decriminalization in places that still outlaw homosexuality -- mostly concentrated in the Middle East, Africa and the Caribbean. For my part, I can think of many social problems in these parts of the world, but it really takes a special kind of mind to arrive at the opinion that one of the most pressing is that they need to become more gay. Grenell, however, horrified that Iran has the audacity to execute its own convicted homosexual pederasts, was not to be deterred, and was instrumental in the blackmail of lesser nations, promising they would be denied access to terrorism intelligence if they don't legalise homosexuality. All of which has left the far corners of the American cultural-military empire questioning whether they could better live with suicide bombers or sodomy.

Against such manoeuvres, Biden's apparent claim to be one half of the "most pro-equality ticket in history" seems a little overstated. That being said, there's no question that Biden is going to step up the domestic nature of GloboHomo significantly as soon as he assumes office. Biden has pledged to sign the Equality Act, thus far opposed by the Trump administration, within his first 100 days in office, a piece of legislation that will amend "the Civil Rights Act to prohibit discrimination on the basis of sexual orientation and gender identity in employment, housing, public accommodations, public education, federal funding, credit, and the jury system." Biden has pledged to appoint significant numbers of homosexuals and transsexuals to positions of influence, and has promised to allow transsexuals to join the military. Experienced in advancing global LGBT+ dogma as part of the Obama-Biden administration, Biden will also once again take up the global mantle, expressing his "hopes to reverse Trump's efforts and expand queer rights internationally by making equality a centrepiece of US diplomacy," and condemning Poland's "LGBT-free zones." Stunning and brave indeed.

There is a certain sense in the cases of both Trump and Biden that, for all the flamboyance of their efforts in this area, there is a performative aspect to this politics. I don't get the impression that either has been especially personally committed to these ideas or actions, but that, as pragmatic-symbolic politicians, they have been made aware that this is the direction the broader System is moving in and they should comply and support it. The longevity and gradual acceleration of these trends, beginning in earnest with the presidency of Bill Clinton, would suggest a systemic movement underlying, and entirely untethered to, specific political parties or figures. Throughout the West, and much as with Zionism, GloboHomo, or hedonistic credit-based capitalism and its sexual correlates more generally, is to be accepted and promoted as an essential part of the role of neoliberal government. In the context of declining basic freedoms at home, for example the obvious decline in free speech and the creeping criminalisation of meaningful dissent against the status quo, the international promotion of homosexuality and transsexual identities offers a cost-free and PR-friendly method for increasingly authoritarian neoliberal regimes to posture as crusaders for freedom. The trucker in Ohio is, logical flaws notwithstanding, and whether he wants it or not, thus assured of his place in the Land of the Free via his government's emancipation of the gays and transvestites of Uganda. Engaged politically only at the most superficial level, the masses play along with this ruse, often in blunt denial, possessing only fragmentary realisations of the fact their countries are changing around them while the petty "rewards" of Americanism are meagre and peculiar, if not insulting.

GDP!

Along with frequent reassurances that he was "giving serious consideration" to doing something, Trump's presidency was marked by regular updates on the performance of American GDP. Unfortunately the GDP, like the Jewish vote, appears to have stabbed him in the back, with around 70% of American GDP represented in counties that (putatively!) voted Democrat. Trump's tragicomic belief in GDP performance as a form of politics in its own right is perhaps the quintessential example of the mentality of homo economicus and the tendency of neoliberals to view countries as mere zones, or economic areas, where everything is based on rationalism and materialism, and national success is purely a calculation of economic self-interest. Writing pessimistically of Trump's expected nomination in 2015 , I issued a stark warning about the influence of Jared Kushner, but also added:

For all his bluster, Trump is a creation and product of the bourgeois revolution and its materialistic liberal ideologies. We are teased and tantalized by the fantasy that Trump is a potential "man of the people." But I cannot escape the impression that he is a utilitarian and primarily economic character, who seeks a social contract based on personal convenience and material interest. In his business and political history I see only the "distilled Jewish spirit."

I don't think I've seen anything over the last four years that has made me question or revise that assessment. Trump's dedicated tweeting on GDP in fact had the opposite effect.

The disturbing reality, of course, is that GDP is only one side of a national economy. Another crucial aspect is government borrowing, and current projections suggest that the United States is " condemned to eternal debt ." According to The Budget Office of the United States Congress (CBO), "the US economy would enter the first half of this century with a public debt equivalent to 195 percent of its GDP. In the next 30 years the debt of the most powerful economy on the planet would more than double." The first significant jump occurred in the wake of the subprime crisis, in which Jewish mortgage lenders were especially prominent. The subprime crisis forced public debt to 37 percent of GDP, which then rose steadily to 79 percent between 2008 and the outbreak of COVID-19. It now stands at 98 percent, and is accelerating. Although the United States has reached comparable levels of debt in the past, there has almost always been an accompanying war, or wars, which acted as a financial pressure valve -- a fact that does not bode well for isolationists but may be encouraging news for Zionist hawks.

Joe Biden has claimed recently that "a Biden-Harris Administration will not be measured just by the stock market or GDP growth, but by the extent to which growth is raising the pay, dignity, and economic security of our working families" -- while at the same time welcoming millions of new immigrants and legalizing the ~20M+ illegals into the workforce .The American economy is in fact extremely unlikely to change direction, with Biden reassuring his billionaire donors gathered at the Carlyle Hotel in Manhattan in June 2019 that "no one's standard of living will change, nothing would fundamentally change." I believe him. Biden was part of an administration that looked on as 10 million working Americans lost their homes. Matt Stoller at the Washington Post has described Obama-era Democrat economic policies as "in effect, a wholesale attack on the American home (the main store of middle-class wealth) in favor of concentrated financial power." Biden was part of a team that outright rejected prosecuting major bankers for fraud and money laundering, and that represented one of the most monopoly-friendly administrations in history:

2015 saw a record wave of mergers and acquisitions, and 2016 was another busy year. In nearly every sector of the economy, from pharmaceuticals to telecom to Internet platforms to airlines, power was concentrated. And this administration, like George W. Bush's before it, did not prosecute a single significant monopoly under Section 2 of the Sherman Act. Instead [under Obama] the Federal Trade Commission has gone after such villains as music teachers and ice skating instructors for ostensible anti-competitive behavior. This is very much a parallel of the financial crisis, as elites operate without legal constraints while the rest of us toil under an excess of bureaucracy.

Biden is the product of funding from forty-four billionaires , including six hedge fund speculators, seven real estate barons, and five in the tech sector. Of the top 22 donors, at least 18 are Jews (Jim Simons, Len Blavatnik, Stewart Resnick, Eli Broad, Neil Bluhm, David Bonderman, Herb Simon, Daniel Och, Liz Lefkovsky, Steve Mandel, Bruce Karsh, Howard Marks, S. Daniel Abraham, Marc Lasry, Jonathan Tisch, Daniel Lubetsky, Laurie Tisch, and Robert Toll). The Jewish consortium behind Biden is almost identical in its financial composition to that behind Trump which, as I've explained previously , was notable for its embodiment of "usury and vulture capitalism, bloated consumerism, and the sordid commercial exploitation of vice." Biden's transition team , meanwhile, is comprised of "executives from Lyft, Airbnb, Amazon, Capital One, Booz Allen, Uber, Visa, and JPMorgan." In short, expectations that Biden is going to break up Big Tech, or any monopoly for that matter, are the fantasies of the deluded, the ignorant, and the duped.

Conclusion

While the drama and recrimination surrounding the election are unquestionably fascinating, I hope you'll forgive for being less agitated than most. My reasons for lethargy are simple: I knew that regardless of outcome we'd get four more years -- four more years of Zionism, GloboHomo, and the standardized, rationalized machinery of economic escalation that now provides the apologetic engine for mass migration. Behind the abortion debates, Supreme Court picks, culture wars, and media theater, these are the non-negotiables of the System. You don't hear about them, and you can't talk about them, because you can't vote on them. And this is the biggest electoral fraud of all.

Jack McArthur , says: November 14, 2020 at 7:37 pm GMT • 1.9 days ago

I feel particular sorrow for ordinary decent Americans, in what today should be the land of plenty for all, who are having to witness this horrible implosion of their country and values. Other than divine intervention there is no hope. The media, money markets and political classes are either directly run by the same children of a devil or by loathsome gentiles who have taken the Judas coin or who are cowards in fear of their miserable life's.

What is life if it means cowering down in the face of evil? An ancient voice trying to tell this strange world that you are controlled by an evil power and that your eternal fate is determined by how you respond to it i.e. join the freak show or stand up like a true man or woman and tell them no.

The writer of this essay is a man of culture, with wide interests. There are not many left. Compare him to the moronic voices of today with their narrow perverted interests and weep for what faces you.

Craig Nelsen , says: November 14, 2020 at 9:30 pm GMT • 1.8 days ago

I feel particular sorrow for ordinary decent Americans, in what today should be the land of plenty for all, who are having to witness this horrible implosion of their country and values. Other than divine intervention there is no hope. The media, money markets and political classes are either directly run by the same children of a devil or by loathsome gentiles who have taken the Judas coin or who are cowards in fear of their miserable life's.

Particular particular sorrow for the young. As for divine intervention, we used to have a saying about God helping those who help themselves. Surely there must be some action we can take.

https://jailsoros.com/

Realist , says: November 15, 2020 at 3:30 pm GMT • 1.1 days ago

While the drama and recrimination surrounding the election are unquestionably fascinating, I hope you'll forgive for being less agitated than most. My reasons for lethargy are simple: I knew that regardless of outcome we'd get four more years -- four more years of Zionism, GloboHomo, and the standardized, rationalized machinery of economic escalation that now provides the apologetic engine for mass migration. Behind the abortion debates, Supreme Court picks, culture wars, and media theater, these are the non-negotiables of the System. You don't hear about them, and you can't talk about them, because you can't vote on them. And this is the biggest electoral fraud of all.

Exactly correct. As early as mid April 2017 I could see that Trump had no intention of keeping his promises to middle Americans I wrote a comment to this blog saying as much.

Trump is a minion of the Deep State.

The Deep State doesn't care about the unimportant internecine squabbles of the two parties as long as their important issues are advanced (wealth and power). As a matter of fact it strengthens the false perception that there is a choice when voting.

Trump and the Deep State do not care what the American people want. They know that most American people are inane fools and will believe anything. Most Americans would rather watch America's Got Talent, Dancing With The Stars or The Masked Singer than be informed about important issues.

AReply , says: November 16, 2020 at 6:05 am GMT • 11.1 hours ago

The only discernible values espoused in this rambling crypfic article is dog-whistling to bigots of yore.

There is no study of history, no analysis, no insight and no meaning beyond blathers about jews and homos.

The tone is hatred and despair with the judgement that others are to blame and there is nothing to work towards.

The Zizek quote offered a word-salad refrain that everybody comes to power under some bias, to themselves, if nothing else. But Zizek's actual point has be de-contextualized. Here is what Zizek was saying:

Biden is Just Trump With a Human Face
https://www.google.com/amp/s/www.rt.com/op-ed/504705-slavoj-zizek-biden-trump/amp/

//Let's remember that [Hannah] Arendt said this in her polemic against Mao, who himself believed that "power grows out of the barrel of a gun" – Arendt qualifies this like an "entirely non-Marxist" conviction and claims that, for Marx, violent outbursts are like "the labor pangs that precede, but of course do not cause, the event of organic birth." Basically, I agree with her, but I would add that there never will be a fully peaceful "democratic" transfer of power without the "birth pangs" of violence: there will always be moments of tension when the rules of democratic dialogue and changes are suspended.

Today, however, the agent of this tension is the Right, which is why, paradoxically, the task of the Left is now, as the US politician Alexandria Ocasio-Cortez has pointed out, to save our "bourgeois" democracy when the liberal center is too weak and indecisive to do it. Is this in contradiction with the fact that the Left today should move beyond parliamentary democracy?

No: as Trump demonstrates, the contradiction is in this democratic form itself, so that the only way to save what is worth saving in liberal democracy is to move beyond it – and vice versa, when rightist violence is on the rise, the only way to move beyond liberal democracy is to be more faithful to it than the liberal democrats themselves. This is what the successful democratic return to power of the Morales's party in Bolivia, one of the few bright spots in our devastated landscape, clearly signals.//

In other words we must be conservatives who are willing to progress!

And hey, crypto-fascists: Zizek is not on board with you just because RT runs him on their version of Fox News.

A New Kind of Communism

https://www.youtube.com/embed/QARALafdWUI?feature=oembed

The world is never going back to the old-timey dayz of white settlement of an eden America. So move forward or croak of old age or both.

As to the idea that "decent Americans" are in any way demoralized by Trump's loss:
BULLSHIT!

If you are demoralized by Trump's loss, you have been ejected from decency. But Luckily for you, it so happens USA is a happy-enough home for all stripes of perverts.

Meimou , says: November 16, 2020 at 6:10 am GMT • 11.0 hours ago
@Verymuchalive the Occidental Observer writers in prison, you have zero reason to think Trump won't crack down on free speech in 2020.

Another 4 years of Trumpstien means a very large % of the right will continue to sleep, something Biden could not get us to do. Biden could never get the right to support vaccines or martial law.

No Trump apologist besides Alex Jonestien gives an excuse why Trump is backing a unsafe, hastily made vaccine for a disease with a 99% survival rate. No Trump cultist will provide a credible one. (Wally will not be the first)

Consider.

GreatSocialist , says: November 16, 2020 at 6:22 am GMT • 10.8 hours ago
@Realist rs.

And what happened? She was raped and kicked in the butt by him. He always does that to everybody. He did it to his dad, he did it to his brothers and sister, he did it to his family ..and now he has raped America.

Trump's only ability is to find out what others fear or desire, then overpromise on everything and deliver nothing or even the opposite after u have given him your support or money. That's how he operates in business, and that's how he has conducted his fake presidency.

I am surprised that so many seemingly intelligent people have been taken in by this well-known conman.

Clay Alexander , says: November 16, 2020 at 6:44 am GMT • 10.4 hours ago

Great article. What I find strange is a businessman from New York second only to Israel in population of Jews could be so easily duped by them. Loyal only to themselves. In the words of Harry Truman "Jesus couldn't do anything with them, what am I suppose to do with them?".

geokat62 , says: November 16, 2020 at 8:26 am GMT • 8.7 hours ago

I think it needs to be emphasised that the "homo" in globohomo stands for "homogeneity" and not "homosexuality":

Globohomo

(adj) A word used to describe a globalized and homogenized culture pushed for by large companies, politicians, and Neocon/Leftist pawns. This culture includes metropolitan ideals such as diversity, homosexuality, sexual degeneracy, colorblindness in regard to race, egalitarianism, money worship, and the erasure of different individual cultures, among other things.

https://www.urbandictionary.com/define.php?term=Globohomo

Miro23 , says: November 16, 2020 at 10:28 am GMT • 6.7 hours ago

My reasons for lethargy are simple: I knew that regardless of outcome we'd get four more years -- four more years of Zionism, GloboHomo, and the standardized, rationalized machinery of economic escalation that now provides the apologetic engine for mass migration. Behind the abortion debates, Supreme Court picks, culture wars, and media theater, these are the non-negotiables of the System. You don't hear about them, and you can't talk about them, because you can't vote on them.

This may be great for The US' Jewish plutocracy, but the United States is still in economic competition with countries that don't give 2 cents for ZioGlob world (for example China – which has just signed the RCEP – Regional Comprehensive Economic Partnership, covering 15 Asian countries, after 8 years of negotiation and covering 2.2 billion people).

So the rest of the world looks on with interest, same as it did in 1923, when the German Weimar Republic collapsed in an orgy of sleaze, corruption, debt and worthless money.

sethg , says: November 16, 2020 at 10:38 am GMT • 6.5 hours ago

990. Jews are the scapegoats for all the deficiencies of low-IQ whites just as whites are the scapegoats for all the deficiencies of low-IQ non-whites. Let me explain how that works.

Why do we observe Jews at the forefront of many cutting-edge industries? (for example the media/arts and financial industries are indeed rife with them). The low-IQ answer is, of course, a simplistic conspiracy theory: Jews form an evil cabal that created all these industries from scratch to "destroy culture" (or at least what low-IQ people think is culture, i.e. some previous, obsolete state of culture, i.e. older, lower culture, i.e. non-culture). And, to be sure, there is a lot of decadence in these industries. But, in an advanced civilization, there is a lot of decadence everywhere anyway! It's an essential prerequisite even! So it makes perfect sense that the most capable people in such a civilization will also be the most decadent! The stereotype of the degenerate cocaine-sniffing whoremonging or homosexual Hollywood or Wall Street operative belongs here. Well, buddy, if YOU were subjected to the stresses and temptations of the Hollywood or Wall Street lifestyles, maybe you'd be a "degenerate" too! But you lack the IQ for that, so of course you'll reduce the whole enterprise to a simplistic resentful fairy tale that seems laughable even to children: a bunch of old bearded Jews gathered round a large table planning the destruction of civilization! Well I say enough with this childish nonsense! The Jews are simply some of the smartest and most industrious people around, ergo it makes sense that they'll be encountered at or near all the peaks of the dominant culture, being overrepresented everywhere in it, including therefore in its failings and excesses! This is what it means to be the best! It doesn't mean that you are faultless little angels who can do no wrong, you brainless corn-fed nitwits! There's a moving passage somewhere in Nietzsche where he relates that Europe owes the Jews for the highest sage (Spinoza), and the highest saint (Jesus), and he'd never even heard of Freud or Einstein! In view of all the immeasurable gifts the Jewish spirit has lavished on humanity, anti-semitism in the coming world order will be a capital offense, if I have anything to say on the matter. The slightest word against the Jews, and you're a marked man: I would have not only you, but your entire extended family wiped out, just to be sure. You think you know what the Devil is, but he's just the lackey taking my orders. Entire cities razed to the ground (including the entire Middle East), simply because one person there said something bad about "the Jews", that's how I would have the future! Enough with this stupid meme! To hell with all of you brainless subhumans! You've wasted enough of our nervous energy on this stupid shit! And the same goes to low-IQ non-whites who blame all their troubles on whites! And it's all true: Jews and whites upped the stakes for everybody by bringing into the world a whole torrent of new possibilities which your IQ is too low to handle! So whatcha gonna do about it? Are you all bark, or are you prepared to bite? Come on, let's see what you can do! Any of you fucking pricks bark, and we'll execute every motherfucking last one of you!

From http://orgyofthewill.net

Zarathustra , says: November 16, 2020 at 10:44 am GMT • 6.4 hours ago

Blah, blah, blah. Cat circling the hot plate. Trump was galacticly stupid. He should have told the Jews that I will give you Jerusalem and Golan heights in my second term. He would have a second term.
The only point is here is this:
Jews see Iran as a mortal threat. Jews want Iran to be destroyed. For Biden the first point on the agenda is destruction of Iran. Biden did promise Jews that he will destroy Iran.
That is why Biden did win.
Trump hesitated with his promise to destroy Iran that is why he lost.
So here is the conclusion question:
Was Biden serious when he promised to Jews destroy Iran, or he was only making fools from them Jews.
That is the only outstanding question

The Spirit of Enoch Powell , says: November 16, 2020 at 4:11 pm GMT • 58 minutes ago
@Trinity

From my understanding, the term "Globohomo" was originally meant as a shorthand for "globalised homogenisation", wherein all national cultures would be eliminated in favour of a universal culture, promotion of homosexuality is just one of the components of GloboHomo, with things like rampant consumerism, substance use and liberalism being some of the other things.

If you go to the newly built sections of Europeans cities, you will notice how they are all the same (homogenous) with the same American fast food outlets and the same architectural style.

[Nov 16, 2020] GDP figures hide rents, and unearned income as if they are GDP gains.

Nov 16, 2020 | www.unz.com

Mefobills , says: November 16, 2020 at 4:16 pm GMT • 53 minutes ago

The Jewish consortium behind Biden is almost identical in its financial composition to that behind Trump which, as I've explained previously, was notable for its embodiment of "usury and vulture capitalism, bloated consumerism, and the sordid commercial exploitation of vice."

GDP figures hide rents, and unearned income as if they are GDP gains.

Let's take the housing bubble years up to 2008 as an example. Thought experiment: Everybody in the West sells their home to their neighbor.

New bank credit was created due to loan formation to buy and sell homes. There was activity as new finance paper was created in the form of new debt instruments to transfer your home to your neighbor. All the new interest collected by banks is seen as profit.

GDP goes up by the profits and new finance activity.

The physical housing stock does not change at all.

Hudson and PCR explains how GDP is a false metric for measuring economic activity. People cannot understand things if they don't have words for it, or if they don't have a way of measuring.

Clown world is formed purposefully.. rents, unearned income, usury are a feature of the system, not a bug. It is not you going crazy, you have become Allice in wonderland, where reality is unreal.

https://www.paulcraigroberts.org/2019/12/16/neoliberal-economics-destroyed-the-economy-and-the-middle-class/

According to official US government economic data, the US economy has been growing for 10.5 years since June of 2009. The reason that the US government can produce this false conclusion is that costs that are subtrahends from GDP are not included in the measure. Instead, many costs are counted not as subtractions from growth but as additions to growth . For example, the penalty interest on a person's credit card balance that results when a person falls behind his payments is counted as an increase in "financial services" and as an increase in Gross Domestic Product. The economic world is stood on its head.

[Jan 08, 2020] Deification of questionable metrics is an objective phenomenon that we observe under neoliberalism

Jan 08, 2020 | angrybearblog.com

.

  1. likbez , January 8, 2020 4:00 am

    @run75441 January 7, 2020 5:45 pm

    In my golden days, I did manufacturing throughput analysis, cost modeled parts, and reviewed component and transportation distribution. I am curious. Forget all that neoliberal stuff . . .

    Ohh, those golden days 😉

    Measurement has its place and is the cornerstone of science, but it is not equal to pattern recognition. And when applied to social phenomena with their complexity it is more often a trap, rather then an insight.

    You need to understand that.

    Deification of questionable metrics is an objective phenomenon that we observe under neoliberalism.

    A classic example of deification of a questionable metric under neoliberalism is the "cult of GDP" ("If the GDP Is Up, Why Is America Down?") See , for example

    https://www.theguardian.com/commentisfree/2019/nov/24/metrics-gdp-economic-performance-social-progress

    Also see a rather interesting albeit raw take on the same ("Growth for the sake of growth is the ideology of the cancer cell." ) at:

    http://casinocapitalism.info/Skeptics/Financial_skeptic/Casino_capitalism/Number_racket/gdp_is_a_questionable_measure_of_economic_growth.shtml

    For example, many people discuss stagnation of GDP growth in Japan not understanding here we are talking about the country with shrinking population. And adjusted for this factor I am not sure that it not higher then in the USA (were it is grossly distorted by the cancerous growth of FIRE sector).

    So while comparing different years for a single country might make some limited sense, those who blindly compare GDP of different countries (even with PPP adjustment) IMHO belong to a modern category of economic charlatans. Kind of Lysenkoism, if you wish

    That tells you something about primitivism and pseudo-scientific nature of neoliberal economics.

    We also need to remember the "performance reviews travesty" which is such a clear illustration of "cult of measurement" abuses that it does not it even requires commentary. Google has abolished numerical ratings in April 2014.

    Recently I come across an interesting record of early application of it in AT&T at Brian W Kernighan book UNIX: A History and a Memoir at late 60th, early as 70th.

[Dec 26, 2019] When doing GDP-PPP comparisons there is one very important thing your guys do not take into account at all and that's a given country's infrastructure

Dec 26, 2019 | www.moonofalabama.org

SysATI , Dec 24 2019 23:17 utc | 115

When doing GDP-PPP comparisons there is one very important thing your guys do not take into account at all and that's a given country's infrastructure.
I mean what each and every citizen "own" just because he lives in that country : roads, highways, schools, hospitals etc etc.

If you take that into account then the US is in a worse shape then many many third world countries....

I don't have the exact numbers in head right now but for example, having a kid in the US costs 10s of thousands of USD (like 40 or 50.000 USD) that you have to pay from your own pocket.
The same thing in Russia costs more like 3-5.000 USD.

In most of the European countries (guess it's the same thing in Russia), if you want to go to school, you'll have to pay a few hundred USD a year to enroll and that's it (of course you have to pay for housing and food just like anybody else). Schools are free and payed by the state, so every citizen "own" them.

If you add up all the things that are private (i.e. that you have to pay for) in the States, compared to what is just "given" to you, I guess, just with school & healthcare, you'll end up easily with 1/2 million dollars per citizen (think about old age healthcare... mamamia, I'm glad I'm not american).

Which means that every Russian is 500.000$ richer that every american at birth...

Then you can start bitching about the few thousand dollars more or less that someone makes in this or that country...

[Dec 25, 2019] GDP numbers do not show the quality of life Also there is a differnce between countries with stable population and growing population. In countries with stable population aven 1% GDP geworwth can improve standard of living considerablyin a decade or so.

Dec 25, 2019 | www.moonofalabama.org

Erelis , Dec 23 2019 20:58 utc | 47

@ Danny 16
Yah, the "numbers" do not show the quality of life. Rarely mentioned for the US is that half the adult population makes $30K or less and cannot afford simple emergencies under $500. Russia now was better maternal survivor rates than the United States. Looks like Canada is suffering the same problem with homelessness. (Homeless problem will get worse as the US Supreme Court ruled that the homeless have a right to camp on sidewalks if no shelters. While maybe compassionate sounding, it removes from local governments the ability to regulate homeless camps.)

Interesting tweet from Bryan MacDonald, an Irishman living in Russia comparing food security issues of both countries.
https://twitter.com/27khv/status/1186586713377988608


By contrast, around 17% of Americans don't have enough to eat (about 24x higher than the Russian figure). But, as the US has a larger middle class, we can assume there's a higher percentage of families there with disposable income beyond essentials.

Erelis , Dec 23 2019 20:58 utc | 47

I agree with you. It's impossible to live in the USA with USD 30,000.00. You're literally a homeless person if you have that wage level.

Nowadays, you can live in the USA with a USD 50,000.00-60,000.00 household wage. But you live badly and one cyclical business crisis or minor heath problem away to be completely bankrupt. And forget about retiring: you'll work until you drop dead.

If you want to consider yourself "middle class" in America, you're probably talking about USD 120,000.00 household earnings. Hence the term "six figure wage/salary" you hear so often in the USA: this is a codename for middle class wage. Americans don't like to describe themselves as a class-based society, for historical reasons that go since its very foundation, so they avoid the word "class" whenever they can.

To be in the "solid" American middle class, you need to be earning (by household) around USD 300,000.00. That generally means both husband and wife are middle class (i.e. earn the famous "six-figure"). In that band of earnings, the family is in a secure position and will be able to send up to two children to a top college. Only a major financial crisis or a catastrophic health tragedy (one of the breadwinners dying prematurely) would be able to knock this family out of the middle class.

From USD 720,000.00 up, you're already in the "upper" middle class territory. At this level, we're probably talking about a household located in downtown New York and Los Angeles, plus second houses to spend the summer, winter or both. These are the households who have a participation (albeit minor) on the Wall Street pie, and who get richer and richer (albeit on a lower pace and smaller scale) as inequality rises. Only a series of very unfortunate events could knock an upper middle class family off its class. The upper middle class also makes up most of the Ivy League elites (in number terms) and serve as a genetic reserve for the American capitalist class (the elite per se), since they are essentially the only

@

[Dec 08, 2019] GDP comparisons of different countries are a joke

Dec 08, 2019 | www.unz.com

kafka , says: December 6, 2019 at 1:21 pm GMT

@Patricus GDP comparisons are a joke.

First problem is that in order to be comparable they are converted into the same currency, typically dollars. That's a problem because things don't cost the same in different countries. If you want to measure strength of economy you need to measure the purchasing power based on where the money is spend and not based on the costs of goods and services in the US (which you inadvertently do when you convert GDP's in US dollar values).

Second problem is that GDP does not measure the 'size' of the economy. It measures how much money is being pumped around within an economy and how often it is being pumped around and then the assumption is made that this represents the size of the economy. It's very easy to artificially increase this pumping around to inflate the apparent size of an 'economy'. Companies do this routinely before IPO's for example. The perversions we now have masquerading as stock markets are another. But mostly it is done by creating debt. When you get a loan, you get money that mostly did not exist prior to you getting it. It's not backed by anything but the expectation of profits (in the sense that you're expected to manage to leverage the money into creating at least enough real economic value to back not just the issue of your loan but also the interest, representing costs for the providers, and provide your share of the compensation for those loan receivers who fail in this task, ie provide backing for the previously non-existing money they received).

So in order to get a genuine measure of the economic power of an economy you need to rate their GDP in terms of local purchasing power which puts Russia equal to Germany. But you also need to account for the amount of debt in an economy as the money issued as debt for the most part does not represent actual existing economic value but at best expected economic value and at worst will not be recouped at all in which case you need to detract it from the GDP numbers.

That gets far too complicated for most people who just want simple, reassuring numbers, like comparing economies on GDP numbers based on dollar values. Dream on.

Here are some facts on the Russian economy:
– in 2018 approx. 82% of GDP was spend domestically and only about 18% exported (see why purchasing power matters?)
– of that 18% exports about a third represented raw materials, so 6% of GDP
– oil and natural gas represented between 35% and 40% percent of raw material exports, which means between 2% and 2,5% of GDP consisted of oil and gas exports.

– in 2018 Russia achieved a rare economical feat, a triple surplus. The total government debt (which was only a few percent of GDP) was less than the surpluses on the government bank accounts meaning there was no net debt. Instead there was a modest net surplus. The second surplus was the annual government budget. In 2018 Russian government spending was less than the government revenues that year. And thirdly, they had a trade surplus, exporting more than they imported.

In case you failed to notice, they exported more than they imported even though only 18% of GDP consists of exports. Given the other two surpluses they could import a lot more than that if they wanted to or if they needed to .

They don't because they don't need to. Russia does not depend on the rest of the world to keep its economy going. It is about as autarkic as it is nowadays possible to be.

[Oct 22, 2019] Would You Give Up Google For $17,000 a Year? The Federal Reserve Wants To Know

Oct 22, 2019 | tech.slashdot.org

(cnbc.com) 139 In a speech last week, Fed Chairman Jerome Powell raised the possibility that the problem is with the data itself. GDP measures the value of products and services that are bought and sold. But many of the greatest technological innovations of the internet age are free. Search engines, e-mail, GPS, even Facebook -- the official economic statistics are not designed to capture the benefits they generate for businesses and consumers . "Good decisions require good data, but the data in hand are seldom as good as we would like," Powell said. Instead, Powell cited recent work by MIT economist Erik Brynjolfsson, one of the leading academics on the intersection of technology and the economy. In a paper with Avinash Collis of the National Bureau of Economic Research and Felix Eggers of the University of Groningen in the Netherlands, the authors conducted massive surveys to estimate the monetary value that users place on the tools of modern life.

The results? The median user would need about $48 to give up Facebook for one month. The median price of giving up video streaming services like YouTube for a year is $1,173. To stop using search engines, consumers would need a median $17,530, making it the most valuable digital service. The authors also conducted more limited surveys with students in Europe on other popular platforms. One month of Snapchat was valued at about 2.17 euros. LinkedIn was just 1.52 euros. But giving up WhatsApp? That would require a whopping 536 euros. Twitter, however, was valued at zero euros.

[Sep 04, 2019] How GDP Measures Help Create The Illusion That Money-Pumping Grows The Economy

Sep 04, 2019 | www.zerohedge.com

How GDP Measures Help Create The Illusion That Money-Pumping Grows The Economy

by Tyler Durden Wed, 09/04/2019 - 12:45 0 SHARES

Authored by Frank Shostak via The Mises Institute,

In response to a weakening in the yearly growth rate of key economic indicators such as industrial production and real gross domestic product (GDP) some commentators have raised the alarm of the possibility of a recession emerging.

Some other commentators are dismissive of this arguing that the likelihood of a recession ahead is not very high given that other important indicators such as consumer outlays as depicted by the annual growth rate of retail sales and the state of employment appear to be in good shape (see charts).

Most experts tend to assess the strength of an economy in terms of real gross domestic product (GDP), which supposedly mirrors the total amount of final goods and services produced.

To calculate a total, several things must be added together. In order to add things together, they must have some unit in common. It is not possible, however, to add refrigerators to cars and shirts to obtain the total amount of final goods.

Since total real output cannot be defined in a meaningful way, obviously it cannot be quantified. To overcome this problem economists employ total monetary expenditure on goods, which they divide by an average price of goods. However, is the calculation of an average price possible?

Suppose two transactions are conducted. In the first transaction, one TV set is exchanged for $1,000. In the second transaction, one shirt is exchanged for $40. The price or the rate of exchange in the first transaction is $1000/1 TV set. The price in the second transaction is $40/1 shirt. In order to calculate the average price, we must add these two ratios and divide them by 2. However, $1000/1 TV set cannot be added to $ 40/1 shirt, implying that it is not possible to establish an average price.

On this Rothbard wrote in Man, Economy, and State :

Thus, any concept of average price level involves adding or multiplying quantities of completely different units of goods, such as butter, hats, sugar, etc., and is therefore meaningless and illegitimate.

Since GDP is expressed in dollar terms, which are deflated by a dubious price deflator, it is obvious that the so called real GDP fluctuations mirror fluctuations in the amount of dollars pumped into the economy.

Hence, various statements by government statisticians regarding the growth rate of the real economy are nothing more than a reflection of the fluctuations in the growth rate of the money supply.

Now, once a recession is assessed in terms of real GDP it is not surprising that the central bank appears to be able to counter the recessionary effects that emerge. For instance, by pushing more money into the economy the central bank's actions would appear to be effective since real GDP will show a positive response to this pumping after a time lag. (Remember that changes in real GDP reflect changes in money supply).

This means that if the economy can be expressed through indicators such as GDP, then this will allow the central bank to appear to be able to navigate the economy (i.e., GDP) by means of a suitable policy mix. In addition, it makes sense to demand that the central bank should interfere in order to help the economy.

Why Business Cycles Are Recurrent

Even if one were to accept that real GDP is not a fiction and depicts the so-called true economy there is still a problem as to why recessions are of a recurrent nature. Is it possible that it is only external shocks that cause this repetitive occurrence of recessions? Surely, there must be a mechanism here that gives rise to this repetitive occurrence?

In a free market, we could envisage that the economy would be subject to various shocks but it is difficult to envisage a phenomenon of recurrent boom-bust cycles. According to Rothbard,

Before the Industrial Revolution in approximately the late 18th century, there were no regularly recurring booms and depressions. There would be a sudden economic crisis whenever some king made war or confiscated the property of his subjects; but there was no sign of the peculiarly modern phenomena of general and fairly regular swings in business fortunes, of expansions and contractions. 1

The boom-bust cycle phenomenon is somehow linked to the modern world. But what is the link? The source of recurrent recessions turns out to be the alleged "protector" of the economy -- the central bank itself.

We suggest that the phenomenon of recessions is not about the weakness of the economy as such but about the liquidation of various activities that sprang up on the back of the loose monetary policies of the central bank. Here is why.

A loose central bank monetary policy, which results in an expansion of money out of "thin air" sets in motion an exchange of nothing for something, which amounts to a diversion of real wealth from wealth-generating activities to non-wealth-generating activities. In the process, this diversion weakens wealth generators, and this in turn weakens their ability to grow the overall pool of real wealth.

The expansion in activities that emerge from the loose monetary policy is what an economic "boom" (or false economic prosperity) is all about. Note that an increase in the monetary pumping due to loose monetary policy of the central bank lifts the monetary turnover and hence GDP.

Once this monetary turnover is deflated by the so-called average price index this will manifest itself in terms of a strengthening in real GDP. Most experts and commentator are likely to proclaim that the central bank's loose monetary policies were successful in growing the economy.

Once however, the central bank tightens its monetary stance, this slows down the diversion of real wealth from wealth producers to non-wealth producers. Activities that sprang up on the back of the previous loose monetary policy are now getting less support from the money supply - they fall into trouble and an economic bust or recession emerges in terms of the monetary turnover deflated by the average price index i.e. the growth rate of real GDP comes under downward pressure.

Activities that emerged on the back of previous loose monetary policy cannot now divert real wealth to support themselves. This is because these activities were never economically viable – they could not support themselves without the diversion of real wealth to them by means of an expansion in money supply. Consequently, most of these activities are likely to perish or barely survive.

Could these activities escape the consequences of a bust if they are well managed and have solid appearance? For instance, as a result of the loose monetary stance on the part of the Fed various activities emerge to accommodate the demand for goods and services of the first receivers of newly injected money.

Now, even if these activities are well managed, and maintain very efficient inventory control, this fact cannot be of much help once the central bank reverses its loose monetary stance. These activities are the product of the loose monetary stance of the central bank and they were never approved by the market as such. They emerged on account of the increase in money supply, which gave rise to an increased demand for goods.

Once the central bank monetary stance is reversed, regardless of efficient inventory management, these activities will come under pressure and run the risk of being liquidated. The supply of real savings is not large enough to support these activities.

From what was said we could conclude that recessions are about the liquidation of economic activities that emerged on the back of the loose monetary policy of the central bank . This recessionary process is set in motion when the central bank reverses its earlier loose stance. Note that recession is good news for wealth generators since less real wealth is now being taken from them.

This means that central bank's ongoing policies that are aimed at mitigating the consequences that arise from its earlier attempts at stabilizing the so-called economy, i.e., real GDP, are key factors behind the repetitive boom-bust cycles. Because of the variable time lags from changes in money to changes in prices and changes in real GDP, Fed policy makers are confronted with economic data that could be in conflict with the Fed's targets. Hence, this forces central bank officials to respond to the effects of their own previous monetary policies.

Note that Fed policymakers regard themselves as being responsible to bring the so-called economy onto a path of stable economic growth and stable price inflation. Consequently, any deviation from the stable growth path as outlined by policy makers sets the Fed's response in terms of either tighter or looser stance. These responses to the effects of past policies give rise to fluctuations in the growth rate of the money supply and in turn to recurrent boom-bust cycles.

In fact, the downtrend in the yearly growth rate in the adjusted money supply (AMS) during 2002 to 2007 was responsible for the economic slump of 2008. An uptrend in the growth rate of AMS during 2008 to 2011 provided a support for the strengthening in economic activity until very recently. A visible decline in the annual growth rate in AMS since 2012 has set in motion an economic slump. This slump is likely to strengthen as time goes by.

Even if the Fed were to lift aggressively its monetary pumping it will not be possible to reverse the downtrend in the AMS growth rate instantly. The state of the pool of real wealth is going to determine the severity of the downturn. We suggest that prolonged reckless monetary and fiscal policies have likely severely undermined the process of real wealth generation. This in turn raises the likelihood that the pool of real wealth is hardly growing. Consequently, it will not surprise us that the likely emerging economic downturn is going to be quite severe by most historical standards.

It is now popular to blame the policies of the US President Trump in particular his trade war with China as the key factor behind a possible recession ahead. While President Trump's policies are not in the spirit of the free market, we suggest that the downtrend in the AMS annual growth rate since 2012 has nothing to do with President Trump's policies but with the policies of the Fed.

Conclusions

Recessions, which are set in motion by a tight monetary stance of the central bank, are about the liquidations of activities that sprang up on the back of the previous loose monetary policies. Rather than paying attention to the so-called strength of real GDP to ascertain where the economy is heading, it will be more helpful to pay attention to the growth rate of the money supply.

By following the growth rate of the money supply, one can ascertain the pace of damage to the real economy that central bank policies inflict. Thus, the increase in the growth momentum of money should mean that the pace of wealth destruction is intensifying. Conversely, a fall in the growth momentum of money should mean that the pace of wealth destruction is weakening.

Real GDP growth rate does not measure the real strength of an economy but rather reflects monetary turnover adjusted by a dubious statistic called the price deflator. Obviously then the more money is pumped, all other things being equal, the stronger the economy appears to be. In this framework of thinking one is not surprised that the Fed can "drive" the economy since by means of monetary pumping the central bank can influence the GDP growth rate. By means of the real GDP statistic Fed policy makers and government officials can create an illusion that they can grow the economy. In reality the policy of intervention of the Fed and the government can only deepen the economic impoverishment by weakening wealth generators.

It now seems to be the consensus that the key factor behind a possible recession ahead would be the policies of the US President Trump in particular his trade war with China as. However we suggest that a key cause behind the possible recession had already been set in motion by the downtrend in the AMS annual growth rate since 2012. This downtrend has nothing to do with President Trump's current policies but with the past policies of the Fed.

trysophistry , 1 hour ago link

"Real GDP growth rate does not measure the real strength of an economy but rather reflects monetary turnover adjusted by a dubious statistic called the price deflator."

The above quoted from the authors post , and below the definition of the price deflator. We all know the Fed is the primary inflator.

"What Is the GDP Price Deflator? The GDP price deflator measures the changes in prices for all of the goods and services produced in an economy. Gross domestic product or GDP represents the total output of good and services. However, as GDP rises and falls, the metric doesn't consider the impact of inflation or rising prices on the GDP results. The GDP deflator shows the extent of price changes on GDP by first establishing a base year, and secondly, comparing current prices to prices in the base year. The GDP deflator shows how much a change in GDP relies on changes in the price level. The GDP price deflator is also known as the GDP deflator or the implicit price deflator."

https://www.investopedia.com/terms/g/gdppricedeflator.asp

rahrog , 5 hours ago link

ALL of the numbers pushed by the establishment in regard to economic health are pure unadulterated ....

They have lied so much for so long they have no way out of the reeking shyte storm they created.

He–Mene Mox Mox , 5 hours ago link

John Williams of Shadowstats wrote about the GDP almost 20 years ago. What he had to say was this:

The U.S. government has been throwing in upward growth biases into GDP modeling ever since the early 1980s, which have rendered this important series nearly worthless as an indicator of economic activity and reality. As a consequence, the distortions from bad GDP reporting have major impact within the financial system.

"With reported growth moving up and away from economic reality, the primary significance of GDP reporting now is as a political propaganda tool and as a cheerleading prop for Pollyannaish analysts on Wall Street".

Basically to say: trash anything you see about U.S. GDP figures. It's not real world.

captcorona , 5 hours ago link

Don't forget all the borrowed money spent into the economy which is measured as GDP . On the micro level it looks like this : I made $100k last year in wages and spent all of it. I also spent $50k with Credit Cards. Of which I still carry that debt. I have a personal GDP of $150K ...isn't that a neat trick ?

newstarmist , 6 hours ago link

Simply put, "money-pumping" is equivalent to credit creation and ultimately is the creation of usury based debt, which is of course, impossible to repay. It is the means to an end, and that 'end' is worldwide slavery.

lion-50 , 7 hours ago link

The money printing creates a fake GDP. The GDP is adjusted for inflation, measured by CPI. However, the CPI is much higher for everything people buy: housing (prices and rent), health care, education, food and transportation.

The CPI published if fake to control government entitlements adjustments. Therefore, from the nominal GDP they subtract less inflation and the GDP seems higher.

If the real inflation would be used, the GDP would have been negative for the past 10 years - economy in contraction. That is what people on main street experience - continuing depression.

Noob678 , 7 hours ago link

GDP = C + I + G + (X – M) or GDP = private consumption + gross investment + government investment + government spending + (exports – imports).

US GDP $21.35 trillion, GDP per capita $64,762 that doesn't mean everyone is making $64,762 per annum.

US Debt $22.5 trillion, debt per citizen $68,362 and debt per taxpayer $183,203.

The more Trump borrows and increases government spending, the higher the GDP and more debt the suckers will have to pay for it plus interest.

https://www.usdebtclock.org/index.html

it's time , 7 hours ago link

I am all for the ending of the Fed, the income tax and fiat currency -and the sooner the better.

However, we still need to address the problem with capitalism that eventually a tiny few own all the assets.

In the 1870-1910 period, the US experienced a lot of the same problems we see today: massive income and wealth inequality, political fighting over immigration, tariffs, monopolies/ anti-trust and taxation. As a result, several significant changes came to the country: the creation of the Fed, the income tax, social security, new tariffs, anti trust legislation, New Deal. I would argue that many of these things came in response to the problems of the day. It's important to note that all of these problems occurred in a free market capitalist system before the Fed, income tax, etc came into existence!

I believe the system needs a debt and asset reset like the Jubilee called for in the Bible.

John Law Lives , 7 hours ago link

I figured this story would be on ZH today:

'Alan Greenspan says it's 'only a matter of time' before negative rates spread to the US'

https://www.cnbc.com/2019/09/04/alan-greenspan-says-its-only-a-matter-of-time-before-negative-rates-spread-to-the-us.html

So, it's print, print, print, spend, spend, spend, kick the can, kick the can, kick the can... and repeat.

FUBAR.

Herdee , 7 hours ago link

Each boom and bust cycle is purposefully designed to make the banks and the Fed more powerful and helps destroy America's middle class. That's been the plan for decades. Besides big government, the Fed is a foreign enemy and privately owned institution that wants to destroy America from within. It's not China, it's not Russia, it's not Iran or Venezuela. It's the Fed that gets more powerful every time more debt is issued. Their plan is inequality with a two tier system in order to get rid of the middle class. This is their banking manifesto. It's all there. How they planned the great depression and how this foreign entity controls politics through money corruption by debt.

http://classicalcapital.com/

Batman11 , 7 hours ago link

Talking about money pumping.

Real estate activity makes the economy boom, what is really going on?

You are taking future prosperity and using it to inflate asset prices today via bank credit (the mortgage).

Bank loans create money and the repayment of debt to banks destroys money.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

In the real estate boom, new money pours into the economy from mortgage lending, fuelling a boom in the real economy, which feeds back into the real estate boom.

The Japanese real estate boom of the 1980s was so excessive the people even commented on the "excess money", and everyone enjoyed spending that excess money in the economy.

In the real estate bust, debt repayments to banks destroy money and push the economy towards debt deflation (a shrinking money supply).

Japan has been like this for thirty years as they pay back the debts from their 1980s excesses, it's called a balance sheet recession.

Heavenstorm , 7 hours ago link

GDP is as misleading as average income & unemployment rate used by economists and policy makers to manipulate the crowd in order to enrich and reward themselves.

[Aug 23, 2019] Annual personal median income for USA is cited as $31,099 in 2016, well below the stated $57,467 GDP/capita for that yearr. Why such a discrepancy exists?

Aug 23, 2019 | www.moonofalabama.org

karlof1 , Aug 22 2019 21:47 utc | 35

Fun with numbers. Recently I discussed the falsity of stated GDP since it counts transactions that ought not to be counted as additions but rather as subtractions. I'd like to take this a step further with GDP/capita, which is about $61,000/yr within the Outlaw US Empire. Yes, as previously discussed, that figure's overstated due to the errors in GDP accounting. But there's another realm that must be considered and that the fact that the 3 richest people within the USA own more wealth than the bottom 50% combined, or more than 160 million people. In other words, the income disparity is so skewed in favor of just those 3 that there's no possible way GDP per capita can be $61,000/yr.

Here annual personal median income for USA is cited as $31,099 in 2016, well below the stated $57,467 GDP/capita for that year. Clearly, the economic position of the USA in contrast to other nations is much worse that depicted just as are the statistics provided by the USG to show the economy isn't as bad as it is actually.

[Aug 16, 2019] What people have to understand is the the 2.1% GDP growth is "paper" growth

Aug 16, 2019 | www.unz.com

Curmudgeon , says: August 16, 2019 at 5:58 pm GMT

@d dan What people have to understand is the the 2.1% GDP growth is "paper" growth. Every stock bought or sold is a "service" for the purposes of GDP growth. Trumps corporate tax cuts were supposed to allow companies to invest in R&D, and re-open manufacturing plants. What has happened is a massive stock buyback by corporations, which artificially inflates stock value, as well as artificially increases the GDP. This is not to say that China's 6.1% growth does not include a sizeable chunk of "paper" GDP growth. Even if it were equal to the US's entire 2.1% GDP growth, it would still be 3times as large.

[Aug 06, 2019] I love the caveat in assessing the USA GDP

Notable quotes:
"... “Any US claims to economic stability – the stock market is roaring like a chained tiger, unemployment is at near-record lows – must be balanced against the fact that the country owes its entire GDP plus a considerable amount in accumulated debt. ..."
Aug 06, 2019 | thenewkremlinstooge.wordpress.com

Cortes July 31, 2019 at 10:29 pm

... ... ...

I love the caveat in

“Any US claims to economic stability – the stock market is roaring like a chained tiger, unemployment is at near-record lows – must be balanced against the fact that the country owes its entire GDP plus a considerable amount in accumulated debt.

And growing, if the source is reliable, at 36% faster than the US economy.”

[Jul 21, 2019] Several years ago Dagong, the Chinese ratings agency, published a report analyzing the physical economy of the States comparing it with those of China, Germany and Japan.

A large part of the US GDP is FIRE business and that alone makes the USA GDP fake metric of economic growth. .
Notable quotes:
"... The conclusion was that the US GDP was something between $5 to $10 trillion instead of $15 trillion as officially reported by the USG . We assume that the official data, especially economic, released by governments is fake, cooked or distorted in some degree. ..."
Jul 21, 2019 | www.zerohedge.com

BuyDash , 9 minutes ago link

As you can see from the soon collapse of the western financial system, the valuation metrics that we have looked to for stability and "the truth" have been mostly fake and gamed.

Inflation, currency supply, housing data, economic growth or lack thereof, all of these data points are manipulated, faked and gamed. Just like the Soviet Union was known in the West to be "faking" their econ data, so too is the west engaged in the same practice.

Deagel.com 2025 population forecast explanation

For example, several years ago Dagong, the Chinese ratings agency, published a report analyzing the physical economy of the States comparing it with those of China, Germany and Japan.

The conclusion was that the US GDP was something between $5 to $10 trillion instead of $15 trillion as officially reported by the USG . We assume that the official data, especially economic, released by governments is fake, cooked or distorted in some degree.

Historically it is well known that the former Soviet Union was making up fake statistics years before its collapse. Western as well as other countries are making up their numbers today to conceal their real state of affairs.

We are sure that many people out there can find government statistics in their own countries that by their own personal experience are hard to believe or are so optimistic that may belong to a different country.

Well, the old boys are back at their old tricks again.

... ... ...

Chain Man , 10 minutes ago link

FASAB 56 has made government financial reporting unreliable. They can hide financial statements. It gives them the right to move around money to hide where money is spent or not report spending at all. I think they used it's loop holes to hide the 17 trillion in drug money.

FASAB is a dream come true for Bank money laundering and embezzlers. The Fed is a joke all these Bank are crooked the way things are set up they can say what ever they want and just screw Nations of the world. End the Fed go to MMT Hybrid system for the sake of the living now, each Nation with it's Own money.

[Jul 06, 2019] Moving away from GDP as a measure of success - Letters

Notable quotes:
"... To extract meaning from GDP trends we have to break it into its components: consumption, investment, government spending, the trade balance. Consumption is by far the largest of these, and the main driver of the economy, but its level is precariously underpinned by unsecured private debt. It is broadly accepted that real investment (in new productive capacity) is dismally inadequate for the continued growth of a modern economy; much of what does take place goes into buying paper assets. ..."
"... focusing on GDP is even more absurd than "prioritising short-term growth over long-term sustainability". ..."
"... a passage spells out the absurdity: "Anything that causes economic activity of any kind, whether good or bad, adds to GDP. An oil spill, for example, increases GDP because of the cost of cleaning it up: the bigger the spill, the better it is for GDP." ..."
"... He goes on and finally shows that "after a country's GDP per capita reaches a moderate level there is no correlation between the wealth of a country and the reported happiness of its population". ..."
Jul 06, 2019 | www.theguardian.com

As an economist I endorse Dan Button's article ( Stop obsessing about GDP: we should focus on wellbeing , 11 June). The most we can say is that a succession of GDP figures over months should indicate whether the economy is growing or moving into recession. Also aggregate GDP statistics tell us nothing about how national wealth and income are distributed: globalisation in recent decades has increased the size of the cake, but the main beneficiaries have been the already better-off.

To extract meaning from GDP trends we have to break it into its components: consumption, investment, government spending, the trade balance. Consumption is by far the largest of these, and the main driver of the economy, but its level is precariously underpinned by unsecured private debt. It is broadly accepted that real investment (in new productive capacity) is dismally inadequate for the continued growth of a modern economy; much of what does take place goes into buying paper assets.

As for government expenditure, most of us are crying out for more on education, health, social care, police, early childhood services, to name a few, but as a nation we want "big state" levels of public services financed by "small state" levels of taxation. Last, we have a massive balance-of-payments deficit: we are exporting too little to pay for our imports; we are living beyond our means. We can only continue this by selling capital assets (such as water companies) to overseas investors, thus losing the dividends and tax revenue that they generate.
Lawrence Lockhart
Bath

• Spot on, Dan Button. But focusing on GDP is even more absurd than "prioritising short-term growth over long-term sustainability". In Jeremy Lent's The Patterning Instinct (a magnificent book recently recommended by George Monbiot ) a passage spells out the absurdity: "Anything that causes economic activity of any kind, whether good or bad, adds to GDP. An oil spill, for example, increases GDP because of the cost of cleaning it up: the bigger the spill, the better it is for GDP."

He goes on and finally shows that "after a country's GDP per capita reaches a moderate level there is no correlation between the wealth of a country and the reported happiness of its population".

Trouble is, this is hard for free-market "wealth creators" to swallow and, as Lent observes: "the mainstream media unquestionably accept the mantra of our locked-in ideology that economic growth, measured by GDP, is the social objective to be pursued above all else". So well done Dan Button and the Guardian for questioning the mantra. Keep it up.
John Airs
Liverpool

• Although the measurement of "personal wellbeing" introduced by David Cameron's government in 2010 is a welcome addition to crude GDP measures, it relies heavily on subjective assessments of life satisfaction, personal happiness, perception of financial situation, level of anxiety and a strange "worthwhile rating". It would be more useful to measure the wellbeing of society as a whole using objective criteria.

These could include, along with GDP per head, medical factors such as infant mortality, longevity, incidence of mental illness, numbers of doctors per head and access to hospitals; social factors such as crime rates, percentage of population in prison, stability of marriages and partnerships, working hours, holidays, homelessness and unemployment; cultural factors such as human rights and access to the arts; and environmental factors such as pollution and carbon footprint.

Such a measure, if internationally agreed, could be used to rate the success or otherwise over time of governments, and to compare wellbeing between countries.
Peter Wrigley
Birstall, West Yorkshire

• It is increasingly accepted that continued economic growth is a short route to eventual disaster for anyone not protected by high wealth: the decline in biodiversity, global heating, air pollution, water stress, soil deterioration and rising sea levels are all trends directly linked to the increase in the amount of the natural world's resources going to fuel consumption. The only way we can protect the mass of human populations is to abandon economic growth altogether and concentrate on better using what we have. This will include changing the numerous ways in which human societies channel the profits of economic activity into the pockets of a few, and challenging the immense pressure exerted by those few on governments whether democratic or other.
Jeremy Cushing

[Jun 16, 2019] Economic Growth A Short History of a Controversial Idea naked capitalism

Jun 16, 2019 | www.nakedcapitalism.com

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https://eus.rubiconproject.com/usync.html <img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" /> Economic Growth: A Short History of a Controversial Idea Posted on June 15, 2019 by Yves Smith By Gareth Dale, who teaches at Brunel University. He publishes occasionally in The Ecologist . This article includes passages from previously published texts, including 'The tide is rising, don't rock the boat!' Economic growth and the legitimation of inequality (2018), Seventeenth century origins of the growth paradigm (2017), and The growth paradigm: A critique (2012). Originally published at openDemocracy

The politics of economic growth are complex and contested as never before. In rich countries, rates of GDP growth have declined, decade after decade since the 1960s. The 2008 crash was deep, and the post-crisis recovery has been slow. This poses problems for governments, given that their 'performance legitimacy' requires some degree of popular approval of their perceived success in charting a growth path that satisfies the citizenry's demand for goods and services. Where growth is low and governments choose to respond with austerity programmes, these bring additional misery and hardship -- including tens of thousands of premature deaths in Britain alone .

In the same decades, growth scepticism has thrived. It takes two main forms: one highlights the impact of infinite growth on finite resources and on the natural environment. Recognition of the dangers of climate breakdown has transformed this debate – while mainstream opinion retains the traditional faith in growth, now refashioned as ' green growth ', the heretics are rallying to ' degrowth '.

The other emphasises the disconnect between growth and social well-being. The days are long gone when growth was seen as the fast track to general prosperity, as normal and natural as sunrise. It is well established that the relationship between growth and well-being is partial at best. Such a correlation does exist, but weakens after a certain point -- roughly speaking when per capita GDP exceeds $15,000. At higher levels, the translation of growth into improvements in health and well-being is tenuous. Other variables, notably levels of equality, are critical.

In combination, these developments have motivated the ' Beyond GDP ' agenda. Whether for reasons of growth scepticism or out of concern that if GDP growth remains slack governments' performance legitimacy will suffer too, political leaders, civil servants and academics -- among them Nicolas Sarkozy , Jacinda Ardern , Gus O'Donnell , Joseph Stiglitz and Amartya Sen -- are promoting alternative yardsticks.

To assess these debates it helps to dig into the history and morphology of the 'growth paradigm' -- the belief that economic growth is good, imperative, essentially limitless, and the principal remedy for a litany of social problems – and ask the following: when and how did this paradigm originate?

From Rain Dance to Nasdaq

One response was offered in 1960 by Elias Canetti . In quasi-Nietzschean vein, he invoked a transhistorical 'will to grow'. Humans are always striving for more . Whether the parent monitoring her child's weight or the state official seeking to augment her power, or the community expanding its population, we all want growth. The desire to accumulate goods, the drive for economic growth, the wish for prosperity – they are all innate to human social being. Humans in groups are driven to seek increase: of their numbers, of the conditions of production, and of the products they require and desire. The very earliest homo sapiens sought the enlargement of their "own horde through a plentiful supply of children." And later, in the age of modern industrial production, the growth drive came into its own.

"If there is now one faith, it is faith in production, the modern frenzy of increase; and all the peoples of the world are succumbing to it one after the other. Every factory is a unit serving the same cult. What is new is the acceleration of the process. What in former days was generation and increase of expectancy, directed towards rain or corn, has today become production itself." A straight line runs from the rain dance to the Nasdaq.

But this is to confuse the wiring of our current economy with the wiring of the human brain. Canetti's 'will to grow' doesn't withstand scrutiny. The diverse behaviours he describes can't be reduced to a single logic. The 'will' behind creating babies is quite unlike the will to accumulate acreage or gold. And the latter is relatively recent. For much of the human story, societies were nomadic or semi-nomadic, and organised in immediate-return systems . Stashes of food were set aside to tide the group over for days or weeks, but long-term storage was impractical. The accumulation of possessions would hamper mobility. The measures that such societies used to reduce the risks of scarcity centred not on accumulating stores of goods but on knowledge of the environment, and interpersonal relationships (borrowing, sharing, and so on). The moral economy of sharing necessitates a muscular egalitarianism that is undermined by the accumulation of property.

Logics of accumulation -- and, in the loosest sense, growth -- were not initiated until the Neolithic revolution. Its technological and institutional transformations included settled agriculture and storage, class division, states, warfare and territoriality, and, later, the invention of money. Population growth joined with class exploitation and interstate competition to expand the sway of agrarian empires. Farmers enlarged the ploughlands, scholars penned proposals for improving the organisation of agriculture or trade, merchants amassed wealth, and rulers, seeking to enlarge population and tribute, extended their domains. Only now -- in the post-Neolithic age -- did gold achieve its fetish quality as the source and symbol of power.

Scour the documents from ancient civilisations and you'll find tales of competition for territory and the accumulation of property, but nothing that resembles the modern growth paradigm. No conception of 'an economy' that can grow, still less of one that tends to the infinite. And you'll find little, if any, notion of linear historical progress. Instead, cyclical cosmologies prevailed. A partial exception is the fourteenth century polymath, Ibn Khaldun . He developed a sophisticated analysis of growth dynamics. But his ideas weren't widely adopted, and his theory is cyclical: it describes negative feedback mechanisms that ensure any economic upticks will necessarily hit barriers and retreat.

When, then, did the modern growth paradigm originate -- and why?

Petty's Arithmetic

The evolution of the growth paradigm was integrally connected to the capitalist system and its colonial thrusts. The basic link between the growth drive and capitalism is transparent. The latter is a system of competitive accumulation. The former, in suggesting that the system is natural and brings benefit also to the '99%', provides ideological cover in that growth serves as an idealised and democratised redescription of capital accumulation. But there's more to it than that. The capitalist transition was to a system of generalised commodity production, in which formal 'productive' economic activity takes the shape of commodities interacting through the price mechanism, in a regularised manner. If earlier political-economic thought had construed its subject as the affairs of the royal household, during the capitalist transition a new model emerged, with an interconnected market field posited as essentially outside the state.

In seventeenth-century England, just as the universe was being re-imagined by Newton et al as a machine determined by lawful regularities, the idea that economic behaviour follows natural laws became commonplace. By the close of the following century, Richard Cantillon had presented the market system as self-equilibrating, a machine that functions in a law-like manner; Quesnay's Tableau had depicted the economic system as a unified process of reproduction; Adam Smith had theorised the dynamics of economic growth; and philosophers (such as William Paley) had developed the creed that steady economic growth legitimates the social system and renders system-critical demands unnecessary and dangerous.

The same centuries experienced a revolution in statistics. In the England of 1600, the growth paradigm could scarcely have existed. No one knew the nation's income, or even its territory or population. By 1700 all these had been calculated , at least in some rough measure, and as new data arrived England's 'material progress' could be charted. Simultaneously, the usage of 'growth' had extended from the natural and concrete toward abstract phenomena: the growth of England's colonies in Virginia and Barbados, the ' growth of trade ,' and suchlike.

But the capitalist transition revolutionised much more than the formal economy and economic concepts. As land came to be regarded as a commodity-like object, the idea -- found to some degree in antiquity -- that nature exists to serve the purposes of landowners and is fundamentally external to human beings, gained definition. The early-modern regimes of abstract social labour and abstract social nature (i.e. the constitution of labour and nature as commodities) were sustained by the scientific revolution, and also by the construction of capitalist time . Over centuries, time became flattened into an abstract, infinite and divisible continuum, one that permitted economic life to be re-imagined as subject to continuous growth and cultivation . Morality was upended, too, most significantly in the discarding of the age-old proscriptions against acquisitiveness.

The more that economic activity came to be marshalled behind the imperatives of capital accumulation, the more it became subject to regimes of 'improvement' and quantification. In Jacobean and Cromwellian England, these practices and discourses proliferated. Agrarian-capitalist improvement was fuelled by scientific discoveries. These, in turn, were spurred on by the navigational and martial demands of explorers, freebooters and conquerors. European settlers in the New World not only exterminated and subjugated 'new' peoples, but turned to objectifying and cataloguing them, drawing comparisons with their own kind and 'improving' them. 'Improvement' and its theologically-intoxicated transplantation to colonial locations generated new data and new demands for detailed knowledge. How profitable is this tract of land, and its denizens? How can they be made more profitable ? Answering such questions was enabled by modern accounting techniques, with their sharper definition of such abstractions as profit and capital.

No surprise, then, that the first statistically rigorous accounting of the wealth of a country (as distinct from, say, a royal household) was conducted by a capitalist on a colonial mission . William Petty planted quantification at the heart of scientific economics, crafted to the purposes of English merchants and empire, and gaining ideological force from the sheen of objectivity with which economic statistics -- or 'political arithmetic' as he termed it -- comes coated. In his work the conquest of nature and the idea of nature as a machine, and of the economy as a productive engine, blended to produce a new concept of wealth as " resources and the productive power to harness them " in contrast to the mercantilist concept, centred on the accumulation of bullion.

Colonisation of the New World contributed powerfully to capital accumulation in Western Europe, but it also spurred Europe's philosophers to elaborate a racialised progress ideology . The question of what to make of the peoples encountered in the Americas, and what implications followed from their property arrangements, stimulated a new reading of the human story: a narrative of social progress. From the vantage point of the colonialists, if 'they' were at the primitive stage, had 'we' once occupied it too?

Centred on a mythical ladder that climbs up from barbarism to civilisation, the progress idea hammered the diversity of human populations into a single temporal-economic chain . By indexing the richer and higher-tech nations (and 'races') as history's vanguard, it justified their bossing of the rest. It was a manifesto that drummed out capital's rhythms, and later found new forms as ' modernisation theory ,' 'the development project,' and so forth, articulated through a grammar of 'growth.' Through its marriage to progress and development, in the belief that social advance requires a steady upward ratchet in national income, growth gained its ideological heft.

The Globalisation of an Ideology

In the nineteenth and twentieth centuries, the consolidation and globalisation of capitalist relations was accompanied by the growth paradigm. The first half of the twentieth century saw its definition sharpen. A pronounced shift occurred from a rather vague sense -- long prevalent -- that government should preside over economic 'improvement' and 'material progress' to an urgent conviction that promoting growth is a matter of national priority. Factors behind the shift included intensified geopolitical rivalry, and the increasing 'muscularity' of states, with their expanded bureaucratic apparatuses, surveillance systems and welfare provision, as well as the segue from the age of empires to that of nation states , a shift that helped consolidate the discourse of the 'national economy.' In many countries the expansion of suffrage was an additional factor: rights were extended and an infrastructure and ideology of national belonging was constructed with the aim of incorporating the lower orders as citizens into the body politic. With the Great Depression, restoring growth became an urgent project of states, and provided the context for the national income accounting that eventually led to GDP.

The acme of the growth paradigm was reached in the mid twentieth century. Growth was firmly established everywhere: in the state-capitalist economies of the 'Second World,' the market economies of the West, and the postcolonial world too. It became part of the economic-cultural furniture, and played a decisive part in binding 'civil society' into capitalist hegemonic structures -- with social democratic parties and trade unions crucial binding agents. It came to be seen as the key metric of national progress and as a magic wand to achieve all sorts of goals: to abolish the danger of returning to depression, to sweeten class antagonisms, to reduce the gap between 'developed' and 'developing' countries, to carve a path to international recognition, and so on. There was a military angle too. For the Cold War rivals, growth promised geopolitical success. "If we lack a first-rate growing economy," cautioned JFK on the campaign trail, " we cannot maintain a first-rate defense ." The greater the rate of growth, it was universally supposed, the lesser the economic, social and political challenges, and the more secure the regime.

The growth paradigm, I suggest, is a form of fetishistic consciousness. It functions as commodity fetishism at one remove. Growth, although the result of social relations among people, assumes the veneer of objective necessity. The growth paradigm elides the exploitative process of accumulation, portraying it instead as a process in the general interest. As Mike Kidron and Elana Gluckstein note, as a system of competition "capitalism depends on the growth of capital; as a class system it depends on obscuring the sources of that growth."

For a long time, GDP growth was widely assumed to be the route to prosperity. Since then, cracks have appeared. In the rich world, we are beginning to realise that continuous GDP growth leads not simply to wealth and wellbeing, but to environmental collapse and barbecued grandchildren. But growth is not its own cause. GDP mirrors the power structure and form of value of capitalist society, but it doesn't define the system's core goal. That goal is the competitive accumulation of capital, and the accounting principles that guide it are those at the level of the firm, not the state. Put differently, the relentless increase in global resource throughput and environmental despoliation is not principally the result of states aspiring to a metric – higher GDP – but of industrial and financial firms, driven by market competition to expand turnover, develop new products, and increase profits and interest.

If the above analysis is correct, insofar as critical debates on growth focus solely on GDP while being coy about capital, they are enacting a form of displacement .

Abi , June 15, 2019 at 3:24 am

In writing a dissertation in 2014 I read Alchian's theory of the firm where he said cooperation is what fosters a peaceful condition for growth to occur, where as competition does the opposite. I've lived by that idea since, at least for us here in Lagos we have a chance to build a more cooperative and less competitive society

Sound of the Suburbs , June 15, 2019 at 4:18 am

If we were actually pursuing growth things would be a lot better.

The current goal is making money (capital accumulation).

What is this GDP thing anyway?

In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn't create real wealth, they came up with the GDP measure to track real wealth creation in the economy.

The transfer of existing assets, like stocks and real estate, doesn't create real wealth and therefore does not add to GDP. The real wealth creation in the economy is measured by GDP.

Inflated asset prices aren't real wealth, and this can disappear almost over-night, as it did in 1929 and 2008.

The economics of globalisation precedes the GDP measure when they thought inflating asset prices created real wealth.

Real wealth creation involves real work, producing new goods and services in the economy.

We need an economics that focuses on GDP to grow GDP.

Neoclassical economics makes you think you are creating real wealth by inflating asset prices and we have been faffing about doing that.

The new scientific economics of globalisation = 1920's neoclassical economics with some complex maths on top.

skippy , June 15, 2019 at 4:30 am

Cambridge Controversy – ?????

Jos Oskam , June 15, 2019 at 4:57 am

" Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term. Goals for more growth should specify more growth of what and for what "

This is not by me, but by the creator of the GDP formula, Simon Kuznets. GDP is a very poor indicator for many reasons, even apart from those mentioned above. Borrowing money and squandering it adds to GDP while the resulting debt is ignored. Extracting and burning fossil fuels adds to GDP while the future depletion is ignored. Stripmining and deforesting nature adds to GDP while you get my drift. To paraphrase Bastiat, the growth in GDP that is seen tends to mask decline in areas like nature and wellbeing that are not seen.

It is tragic to see politicians and pundits thoughtlessly raving about a few tenths of a percent change in GDP while never seeming to realize how poorly this represents things that are really important to humanity.

When will people stop worshipping at the GDP altar?

Steve Ruis , June 15, 2019 at 8:50 am

I might add that someone said back in the 60's that "growth for growth's sake is the philosophy of a cancer cell."

Ian Perkins , June 15, 2019 at 12:18 pm

Wonderful!
BrainyQuote attributes it ("Growth for the sake of growth is the ideology of the cancer cell.") to Edward Abbey, who also came out with "Society is like a stew. If you don't stir it up every once in a while then a layer of scum floats to the top."
Thank you.

John Wright , June 15, 2019 at 11:54 pm

A variation on the theme, from https://en.wikiquote.org/wiki/Kenneth_Boulding

"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

"Attributed to Kenneth Boulding in: United States. Congress. House (1973) Energy reorganization act of 1973: Hearings, Ninety-third Congress, first session, on H.R. 11510. p. 248"

The Rev Kev , June 15, 2019 at 5:46 am

Where the author says 'For much of the human story, societies were nomadic or semi-nomadic, and organized in immediate-return systems.' that is not entirely true that. Here I am thinking of the early Bantu in their expansion in Africa. Their wealth for them were in their cattle herds which being mobile, made possible the expansion of the Bantu down eastern Africa and into Southern Africa. These were long-term investments and Bantu society evolved to take care of these herds as they expanded. Your wealth in that society was in how many cattle you had.
I suppose when you think about it, the paradigm of growth works – to an extent – when there are more lands to discover, more continents to be opened up, more frontiers to be discovered. But all of that ran out a century ago and so with no more new resources to be found to be exploited, we have now reached the point where where we have come up hard against the natural limits of this planet. And yet, our economies still use the same mode of operating when we lived in an ever-expanding world. We are far beyond the point where we should have evolved into a closed-loop economy.

skippy , June 15, 2019 at 5:54 am

Cattle = Status.

The Rev Kev , June 15, 2019 at 6:22 am

More than that. For example. A young man could only really use cattle to be the dowry that he would need to attract a bride so cattle was a sign of his wealth. The status came with it. Cattle shaped their society immensely. Their villages were huge rings where the cattle would be locked in of a night and were called kraals. The people were so familiar with their cattle that a herdsman at a glance of a herd of several hundred cattle would be able to tell straight away if one were missing. It was a fascinating society.

Off The Street , June 15, 2019 at 8:17 am

On Wall Street, people used to ask Where are the client's yachts ?

As a sign of the times, now they can ask Where are the client's cattle, or hats ?

Dan , June 15, 2019 at 9:15 pm

The statement "For much of the human story, societies were nomadic or semi-nomadic, and organized in immediate-return systems" is absolutely true. Please see the book "Limited Wants, Unlimited Means" for a good primer. It includes an excerpt from Marshall Sahlins' "The Original Affluent Society" – a great introduction to hunter-gatherer societies. There is also a wonderful comparison of immediate return and delayed return societies as exemplified in the Hadza people, and the problems that arise once an immediate return society begins to settle, even minimally.

The Bantu evolved later and are agro-pastoralists, not foragers. The Hadza have persisted as foragers even after contact with the Bantu and other groups. They have also repeatedly resisted government and missionary efforts to introduce farming and Christianity. The Hadza are perhaps the best example of how human beings lived on earth for over 99% of our existence, that being in a largely cooperative, egalitarian manner, devoid of concepts such as wealth.

http://web.mnstate.edu/robertsb/307/ANTH%20307/hadzahuntergatherers.pdf

Abi , June 16, 2019 at 2:17 pm

Bantu people were not cattle herders, west central and much of Southern Africa is basically forest, there's no way in this world anyone could move herds this way; it's our northern brothers and sisters that are cattle herders. That being said, culturally we (Bantu) generally moved to set up new families/villages that's how we spread not through some farming technique, that's false

Ignacio , June 15, 2019 at 5:53 am

When I comment with someone, my wife for instance, about the need to get rid of GDP growth as the main political objective and think of small well being objectives I tipically receive commiseration in their eyes: "Yes Nacho, you are right, go and rest for a while"

animalogic , June 15, 2019 at 7:43 am

"I tipically receive commiseration in their eyes"
Its the burden of being right in the world of wrong.

Steven B kurtz , June 15, 2019 at 6:53 am

As usual, scale is ignored. In my (still living) 94 year old mother's lifetime, human population quadrupled. In large mammals, this is sometimes called "plague phase." Add a (minimally) tenfold increase in technological leverage in converting finite resources into infrastructure, food, transportation, consumable goods and services, and the increasingly rapid decline of the ecosphere is hardly a surprise. Dematerialization of the economy is a myth! And don't expect money printing or cyber tokens as solutions. They are simply power tools to access real stuff.

Godfree Roberts , June 15, 2019 at 7:22 am

Except China. Just sayin'

Wukchumni , June 15, 2019 at 7:40 am

One of the drivers of growth in the UK in the late 18th century that was missing, was money. It reached a crisis stage in 1797.

A chronic shortage of coins, silver specie in particular.

Then, the freebooters came to the rescue!

Silver 8 Reales coins plundered from the Spanish were reworked into being coins of the British realm & many other outposts in the colonies.

The first effort was pretty weak, all that was done was they were counterstamped with a small portrait of King George III upon the countenance of King Charles IIII, which led to this ditty:

"In order to enable the Spanish Dollar to pass, the head of a fool was struck on the neck of an ass."

http://jpkoning.blogspot.com/2017/10/the-ubiquitous-spanish-dollara-photo.html

Wukchumni , June 15, 2019 at 7:53 am

A couple of drivers of growth showed up both around the same time, the Haber Bosch process that allowed for pretty much unlimited food resources, and worldwide fiat money, which also had no limits to production.

We've quadrupled the world's population since these 2 events.

Ian Perkins , June 15, 2019 at 12:28 pm

The Haber-Bosch process allowed for a vast, but in no way unlimited, expansion of production.
Fiat money can be produced in unlimited amounts, but, according to both common sense and MMT, actual production also has actual limits.

Wukchumni , June 15, 2019 at 12:38 pm

Setting the world free from first gold and then silver restraints (the last silver coins issued for circulation in the 1st world was in 1969) allowed for a as much as you'd like fiat economy, beyond limits and also risk. (for now, that is)

For what it's worth, there has never been an instance of hyperinflation in the cyber money age.

https://www.youtube.com/watch?v=oGOOF_QnhwQ

Wukchumni , June 15, 2019 at 12:47 pm

Whoops, my bad. Germany issued silver 5 Mark coins for use in circulation until 1974, forgot about that.

Ian Perkins , June 15, 2019 at 1:10 pm

As much wood, steel and cement, or as many doctors, teachers and entertainers as you'd like, without limits, just because money can be printed without limits?

Wukchumni , June 15, 2019 at 1:18 pm

Money is only the lubricant, the ball bearings if you will. It has no agency over where it goes, other than in a tight circle.

Ian Perkins , June 15, 2019 at 1:38 pm

In a tight circle, or into a tight circle – aka the 0.1%?

Oregoncharles , June 15, 2019 at 4:26 pm

It's a fundamental issue: money is an abstraction that can increase without limits; the real world, the real economy, is not. MMT does address that, but I think it's a root source of the persistent inflation that plagued the economy until rather recently. Apparently the Fed, or somebody, can stop it if they wish. However, I think that that history is one reason for the resistance to MMT – it sounds like a formula for more inflation. Since it hasn't actually been tried as a policy (the Pentagon's limitless funds are really just corruption), we won't know for sure until it's tried. There always seems to be a lot that the economists don't know or won't admit.

deplorado , June 16, 2019 at 3:26 pm

Great comment!
Second that.

Thuto , June 15, 2019 at 8:55 am

Politicians don't have the analytical tools to pick apart the "constant growth" argument so they default to trumpeting it as a cure for all social ills (no doubt with encouragement from mainstream economists). On the other end of the spectrum, the growth story seduces ordinary people because they're told their share of the spoils, courtesy of the trickling down effect, will lead them to a "better life". As such, nothing short of a massive ideological decolonization effort is needed to strip growth of the superhero status it enjoys in contemporary economic discourse.

Norb , June 15, 2019 at 1:27 pm

The only positive hope is that enough people take it upon themselves to rise to the occasion. People who have freed themselves from the tyranny of the current economic system need to be examples for others to follow. Those that can, must change their lifestyles. They indirectly become leaders by example.

There is a spiritual component in this transformation that has not really surfaced yet, but feels like it is stirring under the surface. There is so much denial going on that something will burst forth. What form that takes is anyones guess, but most people are just looking for leadership when pressed.

Instead of the neoliberal message of selfish pursuits lead to a better life, the message of self-sacrifice and service to something greater resonates with most people. Instead of being just lip-service or propaganda, this sentiment must be channeled into concrete policies and actions- beginning with oneself.

Underlying all this is the need for peace. The Big Lie of growth pales in comparison to the Big Lie of perpetual war. Both lies reinforce each other.

How to explain the conflict between capitalists and well, all the rest, other than a spiritual war. Where does one place ones faith? Violent and selfish Nationalism will not suffice.

Strength in humility instead of conquest is the dividing line. The decolonization of the human mind must be followed by an awareness and consciousness that the world is here to live in, not conquer. That is an enormous shift in human action and consciousness- those that live this ideal must be valued and emulated.

The attempt must be made- is being made.

Carolinian , June 15, 2019 at 8:59 am

The growth paradigm, I suggest, is a form of fetishistic consciousness.

Elsewhere today Lambert talks about religion as Marx's "opiate of the people" but there are many versions of that drug and our secular overlords seem to have replaced the Bible with other unquestioned assumptions, many of them economic. Perhaps at some point rationality has its limits and illusions of some kind of are necessary to make the engine go. The problem unfortunately is that the current engineers seem to believe those illusions themselves and follow them blindly. They are addicts too. Is it time to "just say no"?

lyman alpha blob , June 15, 2019 at 10:13 am

Good essay. The author gets the the heart of it with this –

The evolution of the growth paradigm was integrally connected to the capitalist system and its colonial thrusts. The basic link between the growth drive and capitalism is transparent. The latter is a system of competitive accumulation. The former, in suggesting that the system is natural and brings benefit also to the '99%', provides ideological cover in that growth serves as an idealised and democratised redescription of capital accumulation.

– where the theory of growth is an attempt to rationalize the greed of the few who really like playing capitalist at the expense of everyone else. How about they get their jollies playing Monopoly and leave the rest of us alone?

I'll just leave this here, a beautiful tune by one of my favorite bands, Old Crow Medicine Show. Four minutes that will make you feel better after reading of all the nastiness in the world, and very apropos to this article –

Ain't It Enough?

hemeantwell , June 15, 2019 at 12:52 pm

I agree with the thrust of your comment but

is an attempt to rationalize the greed of the few who really like playing capitalist at the expense of everyone else.

As noxious as their displays of wealth are, and as much as it's possible to make a case that pathological narcissism infuses the system, the motive to accumulate to compete with rivals, current and future, is central. It's politically useful to attack the way that this motive draws others into its van, i.e. to make them personally despicable. But it might be worthwhile to consider how much the accumulation motive is embodied as a kind of social contract in the firm's organization. I imagine that individual capitalists say to themselves "I've made my pile, time to sail away in my yacht," but the firm and those who will stay on want to keep things going.

rod , June 15, 2019 at 11:12 am

. The moral economy of sharing necessitates a muscular egalitarianism that is undermined by the accumulation of property.
this really stuck out to me.
and I can't really identify why, however I couldn't stop thinking about the growing proliferation of plastic while reading the article

David J. , June 15, 2019 at 12:01 pm

Back in the early 80s, the professor for whom I was a grad assistant frequently urged me to read Canetti's "Crowds and Power." It's a powerful and useful book. Well-written and accessible and full of thought-provoking ideas. I'd recommend it for anyone who wants to ponder social relations.

In this case, Dale seems to use Canetti's book as a kind of straw-man entry to his real topic:an intro to his discussion of growth/degrowth. I guess you gotta start somewhere? Maybe he should have simply directly referenced Canetti on his notion of "feast crowds" (pg 62 of my edition of Crowds and Power.)

The above comments by Sound of the Suburbs and Joe Oskam are incisive, imo. The essence of the matter boils down to developing a more rigorous distinction (and understanding) of the difference between productive economic activity and non-productive economic activity. Hudson is really good on this.

Wukchumni , June 15, 2019 at 12:17 pm

Go back further and Gustave Le Bon's The Crowd from 1896 ages well, because human motives don't change much

"The masses have never thirsted after truth. Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim."

"A crowd thinks in images, and the image itself calls up a series of other images, having no logical connection with the first A crowd scarcely distinguishes between the subjective and the objective. It accepts as real the images invoked in its mind, though they most often have only a very distant relation with the observed facts .Crowds being only capable of thinking in images are only to be impressed by images."

"We see, then, that the disappearance of the conscious personality, the predominance of the unconscious personality, the turning by means of suggestion and contagion of feelings and ideas in an identical direction, the tendency to immediately transform the suggested ideas into acts; these, we see, are the principal characteristics of the individual forming part of a crowd. He is no longer himself, but has become an automaton who has ceased to be guided by his will."

JEHR , June 15, 2019 at 1:16 pm

As I read these quoted words it is hard not to think of the crowds that surround Trump on his so-called "rallies" for his base. One cannot but help ask, Why is anyone listening to this man? Ans: "He is no longer himself, but has become an automaton who has ceased to be guided by his will."

Norb , June 15, 2019 at 3:06 pm

What makes the masses the masses is that they are followers. This is a double edged sword the elite exploit relentlessly- that is what makes them the elite. They hold the power, and desire, to manipulate the masses through narrative and image. These stories and images make the world and human experience comprehensible. When corruption sinks in, that whole group is doomed to eventual failure if a self-correcting mechanism is not present. Leaders/elite and masses both fail.

It is very self-serving for the elite to blame the masses when the "illusions" stop working their magic. Have the elite ever "thirsted after truth" either? Truth meaning a universal truth applicable to all, or the Truth embodied in a personal view as apposed to a public view? Such Truths tend to obfuscate the drive for personal power, which doesn't sit well within groups of people let alone groups of differing cultural or ethnic experiences.

Manipulation of the masses is not the problem, it is manipulation to what end that is the issue. In that respect, the elite leadership should take more responsibility and bear a greater portion of blame for failure- for in fact, they are driving the whole process.

In a nutshell, this is the failure of the current human situation. A greedy elite incapable or unwilling to use the powers at hand to bring about a fair and equatable world. It is just too easy for them to continue their deceitful manipulations and blame hapless or trusting victims.

Another way is for the elite leadership to listen to the people/masses and take their needs and desires into account when molding public opinion. Such an elite will foster the population's wellbeing, not fear them or treat them as a mob. That process makes the elite leadership legitimate.

The most stupid leadership is one that fails to change course when the images and narratives moving its society are failing. The whole society becomes weak and ineffective on multiple levels.

At some point, the factional fighting must stop. It seems inevitable that human society will rebalance itself to manageable levels. The question becomes how violent that transition will be.

hemeantwell , June 15, 2019 at 6:31 pm

LeBon writes of crowds as though there is a complete discontinuity between a person's thought and behavior when they are in a crowd and when they are not. That's nonsense, a cocktail party generalization. I've been in plenty of political crowds and the remarkable transformation he purports was not evident. Le Bon was a rank conservative and his analysis reflected his detestation of the French left, fueled by his experience of the Commune. He's writing in a way that helps justify the massacres that concluded it.

Ian Perkins , June 15, 2019 at 12:04 pm

I often wondered about this fetishisation of growth in GDP (I'm in my sixties now), when in developed countries it seemed to have as many negatives as positives.
Then I realised that capital, in its most general sense, doesn't invest in the hope of getting its money back, but in the hope of its money back plus some more . The only way that can carry on for very long is through growth.
I'm not an economist, but that explanation really rang true for me.

notabanktoadie , June 15, 2019 at 12:59 pm

Usury based finance REQUIRES growth to pay the interest.

Why then government privileges for private credit creation?

nothing but the truth , June 16, 2019 at 10:36 am

exactly.

by infinite growth they actually mean infinite growth of debt, which is required for the current financial system to survive.

Oregoncharles , June 15, 2019 at 4:37 pm

One answer: CASSE, Center for the Advancement of the Steady State Economy, Herman Daly's legacy. https://steadystate.org/ .

Susan the other` , June 15, 2019 at 5:20 pm

Just Thank You. Thank You tons. I will remember the name Gareth Dale and The Ecologist. And the reference to the (unexplained) runaway condition of human economics as "Capitalist Time" v. (of course) real time. Because as we have learned here at NC "financial time goes much faster than real time." And etc. This essay was wonderful, and now we have an outline of why that is true.

John Wright , June 16, 2019 at 12:08 am

From the text:

"roughly speaking when per capita GDP exceeds $15,000. At higher levels, the translation of growth into improvements in health and well-being is tenuous."

The implications of this statement are large, for it multiplies out to a US GDP of 330E6 x 15E3 = 4.95 Trillion or about ONE FOURTH of the current USA economic output (19.39 trillion in 2017).

Forget the Green New Deal, shrink economic output by 3/4 in the USA while drastically lowering inequality to share the shrunken economic pie and one should observe a large positive effect on future climate change while having a reasonable USA citizen well-being,.

[Apr 27, 2019] Perhaps it is time to stop worshipping the latest quarterly GDP figures, as was suggested by Simon Kuznets in 1934, the inventor of the GDP

Apr 27, 2019 | www.unz.com

economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

[Mar 16, 2019] Once oil production peaks and plateaus, then inevitably declines, do you think world GDP will start declining afterwards

Mar 16, 2019 | peakoilbarrel.com

Iron Mike x Ignored says: 03/14/2019 at 1:25 pm

Hi Ron,

Thanks as always for the valuable posts. I am curious about your opinion on something. Once oil production peaks and plateaus, then inevitably declines, do you think world GDP will start declining afterwards? I'd assume it would lag behind it by a short period of time possibly (obviously depending on country etc but overall).


If that was to happen and no energy source can cover the decline rate, wouldn't the world be pretty fucked economically thereafter? Hence one can assume or take a wild ass guess that the decline after peak would resemble something like Venezuela. So not a smooth short % decline rate.
I hope what i am asking makes sense.

Ron Patterson x Ignored says: 03/14/2019 at 1:54 pm
Mike, in all honesty, I have no idea. The problem is there are so many other things going on at the same time. The world is getting warmer, water tables are falling everywhere, rivers are drying up, fisheries are disappearing, and I could go on for an hour explaining how everything is falling apart. And now we hear that the insect population is declining very fast. Why?

So as fossil energy starts to decline and renewables will not help very much, what will happen. Will that exacerbate all our other problems. Yes, it most likely will. Look at Venezuela. Is that what almost every nation will look like in 50 years? Well, probably not every nation but a lot of them for sure.

So, the world is going to hell in a handbasket. But I am 80 years old. I will be safely dead when the shit hits the fan. Lucky me.

[Mar 02, 2019] The consumption of primary energy as important economic metric

Mar 02, 2019 | peakoilbarrel.com

Opritov Alexander

x Ignored says: 02/26/2019 at 3:27 pm I think not all
followed the link
article is big.
Maybe someone will be interested
I will write here in several posts.
I hope someone will be interested.
I continue:
The fluctuations of this second parameter, associated with economic crises and recessions observed in the period under review, make it possible to evaluate the contribution of the notorious "energy efficiency" to the global increase in energy consumption. In a situation of almost "zero growth" of the world economy, which occurred in the period 2008–2009, the consumption of primary energy decreased by 0.8% per year. At the same time, for each percent of economic growth, it is necessary to "pay off" by increasing the consumption of primary energy by about 0.6%.

In an expected way, an improvement in energy efficiency was reflected in monetary indicators: in 2017, each TOE of consumed energy generated $ 8,617 of global GDP, which corresponds to 1.7% of annual growth over the period 2007–2017.

Of course, the world's primary energy is not evenly distributed across countries. Even the top five leaders in the use of primary energy: China, the United States, the European Union, India and Russia – have completely different consumption patterns, which are associated with the historical, geographical, economic and political differences of these countries.

Thus, as of 2017, China has already been the largest global consumer of primary energy: its energy consumption has reached 3.132 billion TOE, which is equal to 23% of the global consumption of primary energy. The growth of Chinese energy consumption is also impressive: in the period from 1990 to 2013, per capita energy consumption in China increased from 0.602 TOE to 2.14 TOE -- that is, almost four times. Since then, energy consumption growth in China has somewhat slowed down, and by 2017, per capita energy consumption there was only 2.26 TOE, which is not only still significantly lower than per capita energy consumption in countries with developed capitalist economies, but and corresponds to an increase in energy consumption of about 1.5% per year (and an economic growth of 2% per year).

If we consider the inertia of this historical trend and additionally take into account the fact that the new policy of the ruling CPC implies a transition to stimulating consumer demand within the country, then we can assume that by 2050 per capita energy consumption in China should reach 5-5.5 TOE. This figure takes into account, in addition, the observed impact of energy efficiency (the same 0.8% per year), but suggests that GDP per capita in China will grow to about the equivalent of $ 50,000 by 2050. At the same time, it should be understood that in a part of the population, a conservative forecast is adopted, according to which the population of China will reach a peak by 2030 and decrease to 1.36 billion by 2050. Taking into account these factors, China's energy demand in 2050 will exceed 7,000 million TOE, i.e., it will grow 2.23 times and make up more than half of the current volume of primary energy production. Information that, according to fertility data, the population of China in 2018 decreased by 1.27 million people, has not yet been officially confirmed, and it is clear that the above figure can be significantly adjusted downward, but in any case, China will pull the world energy "blanket" on themselves.

The United States is the second largest consumer of primary energy in the world. In 2017, the US energy consumption amounted to 2,235 million TOE, which corresponds to 17% of world primary energy consumption. US per capita energy consumption peaked at 8.01 TOE in 2000, which was a historic peak. For the period from 2007 to 2009, per capita energy consumption in the United States decreased from 7.7 to 7.04 TOE, and in 2017 it reached the level of 6.87 TOE. Nevertheless, the United States continues to be the most "voracious" consumer of primary energy per capita, and their ability to further reduce the achieved level is very slim if they are not linked to the global restructuring of their economic and social structure, which is highly unlikely without a deep national crisis. An additional factor is the steady growth of the US population, which has no tendency to slow down until 2050. Reply

Opritov Alexander x Ignored says: 02/26/2019 at 3:35 pm

Still continuing (3):
The European Union is the third largest consumer of primary energy in the world. In 2017, the energy consumption of the European Union amounted to 1,689 million TOE, which is equivalent to 13% of world primary energy consumption. Historically, EU per capita energy consumption was the highest before the onset of the 2008 crisis and amounted to 3.71 TOE in 2006. In the future, the European Union immediately fell into a double crisis: the global economic year 2008–2009 and its own financial one, connected with the debts of the Mediterranean countries, first of all – Greece. This led to the fact that energy consumption per capita in the EU was reduced to a minimum of 3.2 TOE in 2014. By 2017, per capita energy consumption in the EU was only partially recovered and reached 3.29 TOE. At the same time, its value has a very pronounced country differentiation, and if for Germany in 2017 this figure was 3.86 TOE, for France – 3.61 TOE, then for the UK – 2.72 TOE, for Poland – 2.71 TOE, for Portugal – 2.23 TOE, and for Romania – 1.69 ToE. In general, this level of per capita energy consumption quite adequately reflects the EU's longstanding efforts towards supporting energy efficiency, but also vividly shows the limits of what can be achieved within the framework of a concept combining a set of measures for energy saving and green energy replacement. As we see, as a result of the implementation of such programs, the European Union did not become "European China" at all, although it became less like "European America" in the energy issue.

Thus, it can be assumed that in the long-term trend, the per capita energy consumption of EU countries will decrease slightly, only by copying the general trend of slow increase in energy efficiency.

India is the fourth largest consumer of primary energy in the world. In 2017, energy consumption in India increased to 754 million TOE, which is 5.6% of the world. India, like China, is characterized by very rapid economic growth, which was expressed in terms of per capita energy consumption: more than twice since 1990, when it amounted to 0.225 TOE, to 0.562 TOE in 2017. If per capita energy consumption in India continues to follow the same pace, by 2050 it should reach a mark of 1.21 TOE, while India's GDP per capita will reach approximately 19 thousand dollars. It is expected that by 2050 the population of India will grow to 1.72 billion people. That is, it can be expected that by 2050 India's energy demand will exceed 2 billion THN – or it will grow 2.65 times, overtaking even China in terms of relative growth, and in absolute figures ahead of the European Union.

And finally, the Russian Federation, which is the fifth of the world's largest energy consumers. In 2017, primary energy consumption in Russia amounted to 698 million TOE, which accounted for 5.2% of world primary energy consumption. In 1990, when Russia was still part of the USSR, per capita energy consumption in Russia was 5.8 TOE. Over the past years, Russia has already passed its historic low, when the economy of the new country was torn to shreds by neoliberal "shock therapy", the short-sighted policy of rapid privatization and the total introduction of the "wild" market – including in the energy sector. This was reflected in the fact that the minimum energy consumption per capita in Russia was achieved by 1998 and amounted to 4.03 TOE. Smaller values ​​of per capita consumption, apparently, are simply impossible in a cold and harsh Russian climate, since heat supply is a vital function in it – therefore, a value of 4.03 TOE can be considered the level of "basic survival" in Russia. An interesting fact: in Canada, where the climate is very similar to that of Russia, per capita energy consumption is 9.5 TOE as of 2017. At the same time, no one in Canada speaks of "cheap electricity" or "too high costs for heat supply," realizing that this is the necessary conditions for the survival of the country's population.

Since 1998, per capita energy consumption in Russia has been steadily growing and reached a level of 4.83 Toe in 2017, which corresponds to about 0.8% per year. Most likely, this trend will continue in the future, since the living standards of the Russian population are still lower than the living standards in the European Union or the United States, and the Russian level of per capita consumption lags behind the level of the late USSR, even taking into account the accumulated "bonuses" in energy efficiency.
World energy: forecast

As noted above, the parameters of GDP and total energy consumption – just as the parameters of per capita GDP and per capita energy consumption – in the current economy have a strong correlation.
Moreover, almost all the leading countries of the world fit into a very clearly traceable ratio, which corresponds to 10 thousand dollars of per capita GDP for every one TOE per capita consumption. Smaller values ​​of this parameter are characteristic of a number of underdeveloped and developing countries, which leads to a "average" value of $ 8,617 per 1 TOE for global GDP.

There are deviations and "up" on the scale of specific energy – this is already mentioned in the text of Russia, Canada and the United States.

For Canada, Russia and the Scandinavian countries, you can build a separate branch of the graph, on which for the "northern" economies it turns out that for every 10 thousand dollars of per capita GDP they need to spend about 2 TOE per capita consumption – twice as much as for those living in tropical or subtropical climate of China or India.

The phenomenon of "overconsumption" of the United States, as is clear, has a different nature – it is associated with the actual "imperial" energy tax for the whole world, which allows the United States to still maintain excessive energy consumption, which is in no way connected with the country's climate the political structure of the United States, which is the world hegemon.

It is important to emphasize that, if we exclude from consideration the "imperial" United States and "northern" Russia and Canada, then the correlation between oil consumption and the GDP of a particular country acquires almost 100% of its character. For example, Japan, not mentioned above, was the sixth largest energy consumer in the world in 2017 and surpassed most EU countries in terms of both per capita GDP and per capita oil consumption! Although, it would seem, the southern conditions of Japan, almost completely located in the subtropical and tropical zones, suggest lower figures for per capita oil consumption.

In 2017, energy consumption in Japan amounted to 456 million TOE, which amounted to 3.4% of world primary energy consumption. Historical peak energy consumption per capita in Japan reached in 2005 and amounted to 4.15 TOE. Since then, energy consumption in Japan has tended to decline, as the country's national economy fluctuated between a hidden recession and sheer economic stagnation. The effect of the largest nuclear accident at the Fukushima nuclear power plant in 2011 is indicative in this respect: despite the radical restructuring of the energy sector in Japan caused by this catastrophe and the almost complete closure of nuclear power plants in the country, the consumption of primary energy in the Land of the Rising Sun has not undergone such a sharp falls: almost all the "fallen out" volumes of atomic energy were promptly replaced by increased consumption of oil and natural gas. And the general trend of growth or reduction of primary energy consumption still showed a correlation with only three parameters: the country's population, the level of per capita GDP of the national economy and the general trend of improving energy efficiency, which in the case of Japan describes the same energy saving parameter of 0.8% per year .

By 2016, per capita energy consumption in Japan decreased to 3.55 TOE, which was even lower than per capita consumption in 1990, with a fundamentally higher GDP and a practically stable population (an increase of only 3 million people with 123 million in 1990). In 2017, per capita energy consumption in Japan grew only slightly to 3.6 TOE, which is quite consistent with the very modest growth of the national economy.

As already mentioned, the practical economic result of "green" energy, observed for the period 2007–2017, can be optimistically described as "zero" or "poorly distinguishable from statistical error". Of course, one can complain that the sun and wind today give only 2% of the global primary energy production and you need to "just give them more time (and money)", but the sad reality is this: supposedly "promising" new energy sources affect the economy. Their implementation in the countries of the European Union did not affect the picture of energy efficiency and did not alter the ratio between GDP and tons of oil equivalent spent on its production, while the global crisis and the debt crisis of the EU itself turned out to be much more significant factors.

Opritov Alexander x Ignored says: 02/26/2019 at 3:38 pm
Still continuing (4):
A simple forecast follows from these sad conclusions: even if over the next decade the volume of "green" energy again grows 4 times, then its share will reach only 8%. However, even this level is an almost unrealizable dream: according to most forecasts – for example, the IEA in 2017 and the Energy Information Administration (EIA) in 2018 – the actual relative growth of renewable energy sources will be only about 2–20 years before 2030. 2.5 times. Unknown conclusion: even by 2030, the share of oil, natural gas and coal will be at least 75% of the total primary energy level, which will be related to nuclear and hydropower and the continuing relative waste from the use of wood energy and biomass. During the years 2030-2040, the year can be almost fantastic, and all this will be due to the difficulties that must be achieved in the field of oil, gas and coal in the balance sheet. energy.

An extremely unpleasant situation with such a pessimistic forecast is expected with world oil production. At the moment, its growth was concentrated in only nine oil-producing countries. As an example, oil production in China is expected in 2015, after which it was not even possible to achieve an increase in Chinese oil production.

Today, this "growing oil subsoil" includes the following countries (the estimated year of oil production and data source are shown in brackets): Canada (peak in 2049, BP), USA (2042, EIA), Iraq (2042, BP) , Kuwait (2040, BP), Iran (2039, BP), United Arab Emirates (2037, BP), Russia (2033, IEA), Saudi Arabia (2030, BP), Brazil (2024, BP).

The exit from almost all the "growing" sources of oil production in the world is caused by a drop in production from 2030 to 2040, which means the global energy crisis of humanity. and there is "tasty", and there is energy, and all this economic strategy of modern civilization.

Of course, partial replacement with liquid motor fuel, which is easily obtained from petroleum, can be carried out using natural gas, as well as using chemical reforming in various types of liquid hydrocarbons and molecular hydrogen.

However, this situation is hardly optimistic. In 2015, the world's peak production was observed. Currently, natural gas production growth is concentrated in only ten countries (the estimated year of natural gas production and data source are shown in parentheses): Canada (2074, IEA), USA (2063, EIA), Iran (2046, BP), Qatar (2043 , BP), Saudi Arabia (2037, BP), Algeria (2027, BP), China (2027, BP), Australia (2026, BP), Russia (2026, BP), Norway (2023, IEA).

It is easy to see that already after 2030, the natural gas market will, like the oil market, be practically monopolized by four or five countries, each of which will be able to easily manipulate prices by simply adjusting its own production, since other players simply will not have any -or free capacity. Unfortunately, in the case of Russian oil, and when analyzing the prospects for Russian gas in such an oligopolistic market, it can be noted that Russia will be in the "first echelon" of losers, at whose expense they will try to solve world problems with the energy balance.

Of course, a partial replacement of natural gas and oil can be expected in the form of a return to more "dirty" and expensive coal. By the way, it was precisely such a strategy that China and India chose in the 1990s, who, without having wide access to the oil and natural gas market, relied on their own deposits of hard coal. The incidental damage to ecology and human health in this case was the price paid for the rapid industrialization paid by Indian and Chinese society.

However, even on the "coal" path, humanity has its own problems. Today, the rapid growth of coal production is possible only in four (!) Countries of the world. All other countries have already passed their peak of hard coal mining, some of them more recently, such as the USA (2008), China (2013) or South Africa (2014).

According to estimates by international energy agencies, today, growth in coal production is possible only in the following countries (in brackets is the expected year of peak coal mining and source of data): Russia (2112, BP), India (2052, BP), Australia (2032, IEA) , Indonesia (2031, BP).

Opritov Alexander x Ignored says: 02/26/2019 at 3:44 pm
I apologize for
posting an article here
– It was designed for a reader in Russia.

Ending:
Mirovaya energiya: stsenariy

I
World Energy Scenario

The inertial scenario of the development of mankind suggests that by 2050 the world consumption of primary energy will increase one and a half times and will be about 20 billion TOE. This indicator takes into account both the observed effects of energy conservation and a very conservative estimate of future economic growth – within 2–2.5% of the annual increase in global GDP.

However, crisis tendencies will be waiting for us much earlier than in 2050: it seems that the gap between supply and demand on the global energy market will be formed by the early 2030s, when global energy consumption will approach the level of 16-17 billion TNE . As already mentioned, peak years for world production of oil, natural gas and coal are coming in the very near future. According to the IEA, the peak of world oil production will come as early as 2022, when all of humanity will be able to provide about 4,530 million TOE with oil. According to the same forecast, coal will be at its peak in 2028, when at the expense of it it will be possible to get about 6 billion THE (which corresponds to about 8.4 billion tons of physical coal mining, due to its lower energy value). And finally, global natural gas production will peak in 2036, when this energy carrier can provide 3.9 billion ToE.

It is easy to understand that, taking into account the predicted share of oil, coal and natural gas in primary energy of about 75% by 2030, the sum of peak production (14,430 TOE) almost fully corresponds to ¾ the lower bar of estimated consumption in 2030 (16,000 TOE) . It should be understood that the peak values ​​for oil and hard coal in the world will be reached before 2030, after which these energy carriers will only decrease in the volume of physical production. In part, this effect can be compensated for through the involvement of more low-margin fields (as it happened with shale oil and gas), but the limits of such compensatory mechanisms are not unlimited. In addition, a significant increase in the price of primary energy in itself is a sign of the crisis of the existing economic structure, which clearly links social stability with economic growth, and economic growth is fueled precisely by the available (both physically and in price) energy.

Of course, the increase in the price of oil, natural gas and coal will improve the economic prospects of "green" energy (simply due to the banal high cost of any energy available to humanity), but this also means that within future economies huge amounts of energy will simply be spent on maintaining the internal structure economies and the livelihoods of the critically needed primary energy sector.

An idea of ​​this kind of economic structure may well be given by the economic model of the USSR, where such a bias towards the enterprises of "Group A" was dictated by military and state construction, while consumer goods of the enterprises of "Group B" were in short supply. However, in the USSR this mechanism was a reflection of the planned economy, in the case of the supposed "peak" scenario of 2030, it would be formed by purely market mechanisms within the framework of the "classical" capitalist economy.

It is clear that this implies a "contraction" of the final consumption of the population, which will be caused by the forced flow of capital to the high-yielding primary energy production sectors, forced and natural in the framework of the capitalist economy. At the same time, the "welfare society" of the model countries of the "collective West", such as the European Union and, in particular, the United States, will collapse. Faced with this kind of crisis, the "overconsuming" Western countries will unambiguously join the battle for the remnants of mineral energy resources. Such events and wars are likely to surpass even the current "oil conflicts" in the Middle East, North Africa and Latin America, in which the United States and its European allies are directly involved.
Probably, Russia will again be hit, which remains the "last natural storeroom" for large reserves of sufficiently cheap oil, natural gas and coal. Most likely, the "energy predators" will try once again to control the richest natural resources of our country, which, under various pretexts, will strive to declare "the heritage of all mankind". In fact, we will talk about the banal energy robbery of our country, which will hide behind the fig leaf of propaganda.

Another disappointing conclusion follows from the energy "poverty" of the "world of the future": Russia today has to prepare for the fact that our "four hard-earned oil equivalent per capita", which, as noted above, is the basic condition for survival in Russia's severe climate should be in the future provided for the population of the country from sources other than oil, natural gas and coal. The challenges facing the world are facing Russia, but what the United States is the reason for the rejection of overconsumption turns out to be another challenge for Russia in the face of cold and death by starvation.

Unfortunately, the "world of the future" does not promise to be a pleasant and comfortable place to live. And we should prepare for such a negative scenario today.

Hickory x Ignored says: 02/26/2019 at 4:43 pm
Thank you for the thought provoking thoughts Opritov Alexander.
It is useful to hear these ideas from the perspective of those from various countries, such as yours.
The data dovetails closely with what has been presented from other sources, by and large.
The geopolitical ramifications of these challenges is obviously paramount.
I am concerned that countries will be pressured to go to war over the shortfall in energy, through desperation.

A few points about different countries-
The USA could likely decrease it energy use/capita considerably (perhaps 30%), without severe economic repercussion. But it is not taking the issue seriously.
Some countries like Korea will have a very hard time decreasing consumption. They are cold, and heavily industrialized. And rely almost entirely on imported fossil fuel.
I expect India, and China, to lean heavily toward suppliers of fuel as they plan their position in the world and choose allies. Iran and Australia both seem to be prime suppliers considering proximity.
Concerns over global warming will be swamped by concerns over energy shortage, despite the severity of the change, such as food supply disruption and forced migration. These climate problems will likely be much more severe after energy shortage problems develop due to the lag in CO2 effects.

Do you see these issues differently?

Opritov Alexander x Ignored says: 02/26/2019 at 5:17 pm
Mostly I agree with you.
It's hard to imagine the future.
Much will depend on politicians and the willingness of peoples to reduce consumption for the sake of an acceptable standard of living in the future.
Passing the peak of energy consumption will lead to a decrease in global GDP.
This means a decrease in per capita consumption.
Reduced consumption = reduced demand = industrial workload = crisis.
I believe that in order to save people, they will live in multi-storey buildings, perhaps without an elevator (of course, it may not be soon for 50 years), the transport will be public, there will not be enough private cars.
In addition to the peak of hydrocarbons, the peak of copper, gold, silver, tin, and a lot more is coming. How to solve these problems I don't want to dream
Post scriptum. The problem of CO2 and the problem of global warming in Russia is not a popular topic. So much that everyone refuses to discuss it and even think about it. Approximately as an alien topic.

[Feb 26, 2019] Flat to declining energy consumption vs. surging asset valuations are typically understood as a red flag for phony wealth creation via market manipulation, monetization, and central banking stimulus and phony growth of GDP

Feb 26, 2019 | peakoilbarrel.com

Survivalist x Ignored says: 02/26/2019 at 9:43 am

from what I recall the global debt to GDP ratio is about 320% in Q4 2018. GDP growth will cease when debt expansion ceases (FWIW I suspect widely acknowledged peak oil in the rear view mirror, so to speak, will likely play a role in the realization that event)

https://blogs.imf.org/2019/01/02/new-data-on-global-debt/

In 2008 the size of the US economy was $14.5 trillion. A decade later, the size of the economy is $19.7 trillion, so about 36% greater.
Over the same ten years the national debt has grown from $9.4 trillion to over $21 trillion- about 123% greater.
It's hard to pretend that's not a problem, but people still do try.

Interestingly enough .
Census Bureau, Treasury, EIA Detail American Insolvency

"And comparing the US primary energy consumption versus the Wilshire 5000 (representing the value of all publicly traded US equity), a funny thing shows up. Flat to declining energy consumption vs. surging asset valuations this is typically understood as a red flag for phony wealth creation via market manipulation, monetization, and banana republic central banking."

https://econimica.blogspot.com/2019/02/census-bureau-treasury-eia-detail.html

Phony wealth creation is synonymous with phony GDP.

Hickory x Ignored says: 02/26/2019 at 11:16 am
Is a slow recession a tragedy, with chaos necessarily baked into the equation?
If we are lucky, that will be the global challenge.
If not so lucky, recession will be depression.

Some places more than others, of course.
Russia may be be looking more solid than most in the 2030's.
Western Europe, not so good.

Hickory x Ignored says: 02/26/2019 at 12:59 pm
Overall, I was referring to the conditions that will likely ensue after peak fossil.
As very well stated in the post by Opritov Alexander above (and by Ron so many times), the hurdles to replace fossil energy are insurmountable, by and large.
As you have pointed out before, there is a big risk for economic contraction around the time of peal oil.
I expect it to be severe in degree, especially among countries that are elderly, heavily indebted, and heavily dependent on imported energy. And many of these places are your trading partners, no matter what country you hail from.
Indebtedness is not just a transitory or 'paper' issue, IMHO. The cost to attempt transition to non-fossil energy will be huge (beyond huge). How do you buy a second home (renewable energy on a countrywide basis), when you are already maxed out on your credit for the 30 yr loan on your current one (maintenance of your current economic activity and dependents)?

As a slight aside, GDP is not very useful when determining the wealth of a country, since it includes frivolous activity that will evaporate in tough times. Financial transactions, hair dressers, restaurants, sports and music entertainment, weddings, luxury items such as fancy cars, boats and fashion, advertising , are examples of GDP components that can evaporate almost immediately when the times get tough and the velocity of money heads towards zero.

Survivalist x Ignored says: 02/26/2019 at 1:12 pm
GDP considers natural disasters like earthquakes, floods, tsunamis and hurricanes as being favorable to the economy. Add to this the fact that these disasters are hated by the common people who rightly pray that this destruction happens as seldom as possible. Once again, due to the poor fundamentals of the GDP system, the entire science of economics is branded as being anti social. Once again, the true economic fundamentals are not being considered or else the question of economics being an anti-social science does not arise. In this article we will first consider the prevalent viewpoint and then we will debunk the myths pertaining to it.

https://www.managementstudyguide.com/gdp-and-natural-disasters.htm

When a metric values natural disasters as favorable to the economy then you know somethings being missed. I would suggest that repairing after a storm is not growth. GDP makes no distinction between Construction and Reconstruction.

Burn Your House, Boost the Economy
Why GDP is a Flawed Measurement
https://fee.org/articles/burn-your-house-boost-the-economy/

Survivalist x Ignored says: 02/26/2019 at 1:37 pm
" GDP is more accurate than GDB since the GDP is linked to the work done to produce a larger interface between civilization and its sources of energy and matter. It's the interface size that is linked most directly to burning, less so growth of the interface sustaining home value requires constant burning by civilization." ~ Tim Garrett
http://nephologue.blogspot.com/2018/09/on-origins-of-economic-wealth.html?showComment=1536674737631#c4191973140713430153

GDB got started here I think
https://un-denial.com/2018/02/08/on-burning-carbon/

[Feb 12, 2019] Composition of GDP and the USA quest for empire

Feb 12, 2019 | angrybearblog.com

likbez , February 11, 2019 10:01 pm

Below is an interesting note of Timothy Taylor on the composition of GDP.

https://conversableeconomist.blogspot.com/2019/02/why-did-simon-kuznets-want-to-leave.html

== quote ==

Why Did Simon Kuznets Want to Leave Military Spending out of GDP?

Simon Kuznets (Nobel 1971) usually gets the credit for doing as much as anyone to organize our modern thinking about what should be included in GDP, or left out. But I had not known that Kuznets apparently argued for leaving military spending out of GDP, on the grounds that it wasn't actually "consumed" by anyone, but should instead be treated as an intermediate input that supported production and consumption.

=== end ===

In political terms, excluding national defense from GDP would create the impression that the government's statistical agency supports "Peaceniks" -- the critics of "oversized" America's defense budget. It was incompatible with the imperial ambitions of the USA in post-WWII era.

That's probably why his suggestion was killed.

[Feb 11, 2019] Why Did Simon Kuznets Want to Leave Military Spending out of GDP

Feb 11, 2019 | conversableeconomist.blogspot.com

Simon Kuznets ( Nobel 1971 ) usually gets the credit for doing as much as anyone to organize our modern thinking about what should be included in GDP, or left out. But I had not known that Kuznets apparently argued for leaving military spending out of GDP, on the grounds that it wasn't actually "consumed" by anyone, but should instead be treated as an intermediate input that supported production and consumption. Here's how Hugh Rockoff tells the story in his essay, "On the Controversies behind the Origins of the Federal Economic Statistics," in the Winter 2019 issue of the Journal of Economic Perspectives . [Full disclosure: I work at JEP as Managing Editor.] Rockoff writes:

Military spending presented another problem. In one of his last discussions of national income and product before US entry in World War II, Kuznets (1941, pp. 19–20) explained that his estimates included "dreadnoughts, bombing planes, poison gas, and patent medicines because they are rated economic goods in our country today," even though they "might well be considered worthless and even harmful" in a society organized differently. In a footnote, Kuznets (p. 31, fn. 5) used an analogy with private spending to buttress his case for including military expenditures: "If the activities of the private police used by many large corporations are productive, why not those of the municipal police? And if of the domestic police, why not of the international police, i.e., the armed forces of the nation?" During World War II, however, Kuznets (1945) modified his thinking. He argued that military spending should be counted in national product during a time of total war, but it should be excluded during peacetime because military spending was then an intermediary good for producing a flow of consumption to consumers. Other economists, including decisively those at the Department of Commerce, thought otherwise (Gilbert, Staehle, Woytinsky, and Kuznets 1944).
A number of economists, however, have found Kuznets's concept of a Peacetime National Income to be attractive. Higgs (1992), for example, argued that the then-current interpretation of the impact of World War II on the American economy, that it created unprecedented prosperity, was reversed when one used Kuznets's peacetime concept rather than the conventional measure. Higgs even took exception to Kuznets's decision to include some military durables such as aircraft in investment because Kuznets thought that they could later be turned to peacetime purposes.
In retrospect, a number of concerns weighed against adopting Kuznets's concept of peacetime national product. One reason, as Coyle (2014, p. 20) suggests, was the rise of Keynesian economics. In principle, one could use Kuznets's peacetime version of national product to analyze the macroeconomy, but the conventional measure fit more smoothly into the simple Keynesian model taught to a generation of economics students in Samuelson and other textbooks. Perhaps the most important reason for rejecting Kuznets's concept, however, was the Cold War. In his famous study of productivity, Kendrick (1961, p. 25) chose to include all defense spending in his estimates of national product partly on the grounds that "national security is at all times [Kendrick's italics] a prime objective of economic organization." In political terms, excluding national defense from national product would create the appearance that the government's statistical agency was siding with the critics of America's defense budget. Of course, no one was required, as Kuznets had pointed out, to use only one measure of aggregate product. To the contrary, Kuznets thought that it would be best to produce a series of measures, some specialized for one purpose and some for another. But as we have learned, public attention does tend to focus on a single measure of national product, so the decision to ignore Kuznets's peacetime concept may have had important consequences.
I find myself in agreement with the views of Kuznets expressed back in 1941, that if private security guards and municipal police are in GDP, the military should be, too.

But more broadly, the dispute serves as a useful reminder that GDP includes some categories of expenditures that society would have preferred not to make. For example, GDP includes all measures for home security and corporate security--not just guards but also locks, bars, and electronic measures. In addition, GDP includes cleaning up after pollution spills and natural disasters, although it would certainly have been preferable if such events had not happened in the first place. It would also be socially beneficial if people got more exercise and at healthier diets, and as a result a substantial proportion of health care spending didn't need to happen.

For other comments on the relationship between GDP and social welfare, readers might be interested in the well-known comments from "Robert Kennedy on the Shortcomings of GDP in 1968" (January 30, 2012). My own sense is that economists are well-aware of the shortcomings of GDP--indeed, probably better aware of the shortcomings than many critics. But economists also point out that on a wide array of dimensions, people who live in societies with higher GDP tend to live better lives. For samples of these arguments, see "Why GDP Growth is Good" (October 11, 2012) and "GDP and Social Welfare in the Long Run" (April 6, 2015).

[Jan 17, 2019] Nonpublishing of GDP might actually be positive. Subtracting from it 66% of financial sector contribution would also be a step in the right direction

Jan 17, 2019 | angrybearblog.com

likbez , January 15, 2019 4:25 pm

> It appears that GDP is not going to be published by the BEA either.

Nonpublishing of GDP might actually be positive ;-) One less " number racket" metric to deal with. Once a year publication would be more than enough.

Of course, there will be some deprivation among addicted to GDP neoliberal economists, but that's the price to pay for the progress. All "cult of GDP" folk needs to be sent to the dust bin of history anyway, with their books and fake math (aka mathiness).

Subtracting from it 66% of financial sector contribution would also be a step in the right direction.

[Jan 08, 2019] Richard Murphy Davos Wants a Better Measure of Failure

Notable quotes:
"... "GDP provides measurements of output, income and expenditure quite well, and these are needed to understand and devise fiscal and monetary policies. But this measure flatly fails when it comes to well being." ..."
"... As Michael Hudson has pointed out GDP includes all sorts of figures that rightly should be subtracted from economic output since they represent a cost, a drain on productivity as opposed to actual production. Fees charged by financiers, monopoly prices extracted by big pharma, ever-increasing rents, all these things make our economy more expensive, less competitive, and less productive, They make us collectively poorer, not richer. Fix how GDP is calculated and we'd see the truth behind the cheery numbers. ..."
"... I am curious if there was an ulterior motive when US switched from GNP to GDP in 1991; does anyone know ..."
"... The United States used GNP as its primary measure of total economic activity until 1991, when it began to use GDP.[11] In making the switch, the Bureau of Economic Analysis (BEA) noted both that GDP provided an easier comparison of other measures of economic activity in the United States and that "virtually all other countries have already adopted GDP as their primary measure of production".[12] Many economists have questioned how meaningful GNP or GDP is as a measure of a nation's economic well-being, as it does not count most unpaid work and counts much economic activity that is unproductive or actually destructive.[13] ..."
"... Human capital. This word as well as any other captures the dehumanizing nature of capitalism. Just a factor of production. We don't have blood and bone and families. We have exploitable skills. Screw that. Leave not one stone upon another when you rise up and destroy the dystopian economy these swine have created. ..."
"... So the most elite of the global elite have just now figured out that averages can be skewed by extreme outliers? What any undergrad student in statistics could tell you? Man, they're really selling the need for global hierarchies. ..."
Jan 08, 2019 | www.nakedcapitalism.com

Yes, that's the Davos crowd making this point. And they go on to say :

GDP provides measurements of output, income and expenditure quite well, and these are needed to understand and devise fiscal and monetary policies. But this measure flatly fails when it comes to wellbeing.

I guess that's news to no-one but the Davos crowd.

They continue:

Hence growing international interest in a tool that still captures financial and produced capital, but also the skills in our workforce (human capital), the cohesion in our society (social capital) and the value of our environment (natural capital).

Work has advanced on some of these elements. The UN Environment Programme-led Inclusive Wealth Index shows the aggregation through accounting and shadow pricing of produced capital, natural capital and human capital for 140 countries. The global growth rate of wealth tracked by this index is much lower than growth in GDP. In fact, the 2018 data suggests natural capital declined for 140 countries for the period of 1992 to 2014.

This is the chart:

Again, I guess that's news to no one, except the Davos crowd.

But what's scary is the conclusion:

People deserve an accurate sense of how well their economies are performing, with a view to long-term sustainability. GDP has and always will have valuable short-term insights, but to respond to 21st-century pressures we need a modern economic measure.

At that point I wanted to scream. What we, apparently, need is a measure of how badly Davos mentality is screwing things up. We don't need to heed the warnings. Or give up a growth obsession that fuels globalization and is supported by the myth of profit maximization driving well-being to which the whole of Davis subscribes. No, we just need a better measure of the damage that myth causes.

Bring on the Green New Deal, I say.

Will it be on the Davos agenda? I doubt it, somehow.

William Beyer , January 8, 2019 at 7:05 am

Fully elucidated about a quarter century ago in an October, 1995 article in the Atlantic – "If the GDP is Up, Why is America Down?" – by Clifford Cobb, Ted Halstead, and Jonathan Rowe.

cnchal , January 8, 2019 at 8:47 am

"Human capital" is a deceptive way of saying "buy low, sell high". As an employee, you are bought for as little as possible, and sold for as much as possible, with Davos Man collecting that difference, making him filthy rich off the sweat of your brow. When you can no longer sweat for Davos Man, you are no longer human capital, and Davos Man would prefer you die quietly, so he can enjoy his jets and yachts without looking at the wreckage left behind.

John Wright , January 8, 2019 at 9:15 am

"GDP provides measurements of output, income and expenditure quite well, and these are needed to understand and devise fiscal and monetary policies. But this measure flatly fails when it comes to well being."

While I suspect birds instinctively understand the problem with fouling their nests, GDP promoters seem not as instinctively aware.

Much of the GDP industrial "output" pushes the world ever closer to the climate change tipping point, suggesting those promoting GDP growth don't realize the sign on much of their favored metric is negative, not positive, when it comes to the well being of the earth and its inhabitants.

And concern about "well being" should not be limited to humankind.

False Solace , January 8, 2019 at 12:58 pm

As Michael Hudson has pointed out GDP includes all sorts of figures that rightly should be subtracted from economic output since they represent a cost, a drain on productivity as opposed to actual production. Fees charged by financiers, monopoly prices extracted by big pharma, ever-increasing rents, all these things make our economy more expensive, less competitive, and less productive, They make us collectively poorer, not richer. Fix how GDP is calculated and we'd see the truth behind the cheery numbers.

Fred , January 8, 2019 at 10:03 am

Maybe a simple thing like reporting the Net Domestic Product.

Susan the Other , January 8, 2019 at 1:10 pm

I've been curious about the disappearance of the old Gross National Product, replaced by GDP I thought the word National was just too impolitic to use in a globalized world and of course "national" implies a clearer view of sovereignty, etc. Probably had a tendency to nationalize all natural resources and other things no longer tolerable to globalization.

Jeff N , January 8, 2019 at 10:23 am

I am curious if there was an ulterior motive when US switched from GNP to GDP in 1991; does anyone know?

The United States used GNP as its primary measure of total economic activity until 1991, when it began to use GDP.[11] In making the switch, the Bureau of Economic Analysis (BEA) noted both that GDP provided an easier comparison of other measures of economic activity in the United States and that "virtually all other countries have already adopted GDP as their primary measure of production".[12] Many economists have questioned how meaningful GNP or GDP is as a measure of a nation's economic well-being, as it does not count most unpaid work and counts much economic activity that is unproductive or actually destructive.[13]

Stephen Gardner , January 8, 2019 at 2:23 pm

Human capital. This word as well as any other captures the dehumanizing nature of capitalism. Just a factor of production. We don't have blood and bone and families. We have exploitable skills. Screw that. Leave not one stone upon another when you rise up and destroy the dystopian economy these swine have created.

PKMKII , January 8, 2019 at 2:26 pm

So the most elite of the global elite have just now figured out that averages can be skewed by extreme outliers? What any undergrad student in statistics could tell you? Man, they're really selling the need for global hierarchies.

[Dec 06, 2018] Beyond GDP by Joseph E. Stiglitz

Notable quotes:
"... Mismeasuring Our Lives: Why GDP Doesn't Add Up ..."
"... Better Life Index , ..."
"... Beyond GDP: Measuring What Counts for Economic and Social Performance ..."
"... Mismeasuring Our Lives ..."
"... par excellence ..."
"... Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump . ..."
Dec 06, 2018 | www.project-syndicate.org

Dec 3, 2018 Joseph E. Stiglitz What we measure affects what we do. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.

INCHEON – Just under ten years ago, the International Commission on the Measurement of Economic Performance and Social Progress issued its report, Mismeasuring Our Lives: Why GDP Doesn't Add Up .The title summed it up: GDP is not a good measure of wellbeing. What we measure affects what we do, and if we measure the wrong thing, we will do the wrong thing. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.

We were more than pleased with the reception of our report, which spurred an international movement of academics, civil society, and governments to construct and employ metrics that reflected a broader conception of wellbeing. The OECD has constructed a Better Life Index , containing a range of metrics that better reflect what constitutes and leads to wellbeing. It also supported a successor to the Commission, the High Level Expert Group on the Measurement of Economic Performance and Social Progress. Last week, at the OECD's sixth World Forum on Statistics, Knowledge, and Policy in Incheon, South Korea, the Group issued its report, Beyond GDP: Measuring What Counts for Economic and Social Performance .

The new report highlights several topics, like trust and insecurity, which had been only briefly addressed by Mismeasuring Our Lives , and explores several others, like inequality and sustainability, more deeply. And it explains how inadequate metrics have led to deficient policies in many areas. Better indicators would have revealed the highly negative and possibly long-lasting effects of the deep post-2008 downturn on productivity and wellbeing, in which case policymakers might not have been so enamored of austerity, which lowered fiscal deficits, but reduced national wealth, properly measured, even more.

Political outcomes in the United States and many other countries in recent years have reflected the state of insecurity in which many ordinary citizens live, and to which GDP pays scant attention. A range of policies focused narrowly on GDP and fiscal prudence has fueled this insecurity. Consider the effects of pension "reforms" that force individuals to bear more risk, or of labor-market "reforms" that, in the name of boosting "flexibility," weaken workers' bargaining position by giving employers more freedom to fire them, leading in turn to lower wages and more insecurity. Better metrics would, at the minimum, weigh these costs against the benefits, possibly compelling policymakers to accompany such changes with others that enhance security and equality.

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Spurred on by Scotland, a small group of countries has now formed the Wellbeing Economy Alliance . The hope is that governments putting wellbeing at the center of their agenda will redirect their budgets accordingly. For example, a New Zealand government focused on wellbeing would direct more of its attention and resources to childhood poverty.

Better metrics would also become an important diagnostic tool, helping countries both identify problems before matters spiral out of control and select the right tools to address them. Had the US, for example, focused more on health, rather than just on GDP, the decline in life expectancy among those without a college education, and especially among those in America's deindustrialized regions, would have been apparent years ago.

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Likewise, metrics of equality of opportunity have only recently exposed the hypocrisy of America's claim to be a land of opportunity: Yes, anyone can get ahead, so long as they are born of rich, white parents. The data reveal that the US is riddled with so-called inequality traps: Those born at the bottom are likely to remain there. If we are to eliminate these inequality traps, we first have to know that they exist, and then ascertain what creates and sustains them.

A little more than a quarter-century ago, US President Bill Clinton ran on a platform of "putting people first." It is remarkable how difficult it is to do that, even in a democracy. Corporate and other special interests always seek to ensure that their interests come first. The massive US tax cut enacted by the Trump administration at this time last year is an example, par excellence . Ordinary people – the dwindling but still vast middle class – must bear a tax increase, and millions will lose health insurance, in order to finance a tax cut for billionaires and corporations.

If we want to put people first, we have to know what matters to them, what improves their wellbeing, and how we can supply more of whatever that is. The Beyond GDP measurement agenda will continue to play a critical role in helping us achieve these crucial goals.

[Aug 04, 2018] The "next" financial crisis and public banking as the response by Michael Hudson

Notable quotes:
"... You said that we're entering into a recession. That's just the flat wrong statement. The economy's been in a recession ever since 2008, as a result of what President Obama did by bailing out the banks and not the economy at large. ..."
"... The largest element of fakery is a category that is imputed – that is, made up – for rising rents that homeowners would have to pay if they had to rent their houses from themselves. That's about 6 percent of GDP right there. Right now, as a result of the 10 million foreclosures that Obama imposed on the economy by not writing down the junk mortgage debts to realistic values, companies like Blackstone have come in and bought up many of the properties that were forfeited. So now there are fewer homes that are available to buy. Rents are going up all over the country. Homeownership has dropped by abut 10 percent since 2008, and that means more people have to rent. When more people have to rent, the rents go up. And when rents go up, people lucky enough to have kept their homes report these rising rental values to the GDP statisticians. ..."
"... The other great jump in GDP has been people paying more money to the banks as penalties and fees for arrears on student loans and mortgage loans, credit card loans and automobile loans. When they fall into arrears, the banks get to add a penalty charge. The credit-card companies make more money on arrears than they do on interest charges. This is counted as providing a "financial service," defined as the amount of revenue banks make over and above their borrowing charges. ..."
"... The statistical pretense is that they're taking the risk on making loans to debtors that are going bad. They're cleaning up on profits on these bad loans, because the government has guaranteed the student loans including the higher penalty charges. They've guaranteed the mortgages loans made by the FHA – Fannie Mae and the other groups – that the banks are getting penalty charges on. So what's reported is that GDP growth is actually more and more people in trouble, along with rising housing costs. What's good for the GDP here is awful for the economy at large! This is bad news, not good news. ..."
Aug 04, 2018 | www.unz.com

Paul Sliker: So, Michael, over the past few months the IMF has been sending warning signals about the state of the global economy. There are a bunch of different macroeconomic developments that signal we could be entering into another crisis or recession in the near future. One of those elements is the yield curve, which shows the difference between short-term and long-term borrowing rates. Investors and financial pundits of all sorts are concerned about this, because since 1950 every time the yield curve has flattened, the economy has tanked shortly thereafter.

Can you explain what the yield curve signifies, and if all these signals I just mentioned are forecasting another economic crisis?

Michael Hudson: Normally, borrowers have to pay only a low rate of interest for a short-term loan. If you take a longer-term loan, you have to pay a higher rate. The longest term loans are for mortgages, which have the highest rate. Even for large corporations, the longer you borrow – that is, the later you repay – the pretense is that the risk is much higher. Therefore, you have to pay a higher rate on the pretense that the interest-rate premium is compensation for risk. Banks and the wealthy get to borrow at lower rates.

Right now what's happened is that the short-term rates you can get by putting your money in Treasury bills or other short-term instruments are even higher than the long-term rates. That's historically unnatural. But it's not really unnatural at all when you look at what the economy is doing.

You said that we're entering into a recession. That's just the flat wrong statement. The economy's been in a recession ever since 2008, as a result of what President Obama did by bailing out the banks and not the economy at large.

Since 2008, people talk about "look at how that GDP is growing." Especially in the last few quarters, you have the media saying look, "we've recovered. GDP is up." But if you look at what they count as GDP, you find a primer on how to lie with statistics.

The largest element of fakery is a category that is imputed – that is, made up – for rising rents that homeowners would have to pay if they had to rent their houses from themselves. That's about 6 percent of GDP right there. Right now, as a result of the 10 million foreclosures that Obama imposed on the economy by not writing down the junk mortgage debts to realistic values, companies like Blackstone have come in and bought up many of the properties that were forfeited. So now there are fewer homes that are available to buy. Rents are going up all over the country. Homeownership has dropped by abut 10 percent since 2008, and that means more people have to rent. When more people have to rent, the rents go up. And when rents go up, people lucky enough to have kept their homes report these rising rental values to the GDP statisticians.

If I had to pay rent for the house that I have, could charge as much money as renters down the street have to pay – for instance, for houses that were bought out by Blackstone. Rents are going up and up. This actually is a rise in overhead, but it's counted as rising GDP. That confuses income and output with overhead costs.

The other great jump in GDP has been people paying more money to the banks as penalties and fees for arrears on student loans and mortgage loans, credit card loans and automobile loans. When they fall into arrears, the banks get to add a penalty charge. The credit-card companies make more money on arrears than they do on interest charges. This is counted as providing a "financial service," defined as the amount of revenue banks make over and above their borrowing charges.

The statistical pretense is that they're taking the risk on making loans to debtors that are going bad. They're cleaning up on profits on these bad loans, because the government has guaranteed the student loans including the higher penalty charges. They've guaranteed the mortgages loans made by the FHA – Fannie Mae and the other groups – that the banks are getting penalty charges on. So what's reported is that GDP growth is actually more and more people in trouble, along with rising housing costs. What's good for the GDP here is awful for the economy at large! This is bad news, not good news.

As a result of this economic squeeze, investors see that the economy is not growing. So they're bailing out. They're taking their money and running.

If you're taking your money out of bonds and out of the stock market because you worry about shrinking markets, lower profits and defaults, where are you going to put it? There's only one safe place to put your money: short-term treasuries. You don't want to buy a long-term Treasury bond, because if the interest rates go up then the bond price falls. So you want buy short-term Treasury bonds. The demand for this is so great that Bogle's Vanguard fund management company will only let small investors buy ten thousand dollars worth at a time for their 401K funds.

The reason small to large investors are buying short term treasuries is to park their money safely. There's nowhere else to put it in the real economy, because the real economy isn't growing.

What has grown is debt. It's grown larger and larger. Investors are taking their money out of state and local bonds because state and local budgets are broke as a result of pension commitments. Politicians have cut taxes in order to get elected, so they don't have enough money to keep up with the pension fund contributions that they're supposed to make.

This means that the likelihood of a break in the chain of payments is rising. In the United States, commercial property rents are in trouble. We've discussed that before on this show. As the economy shrinks, stores are closing down. That means that the owners who own commercial mortgages are falling behind, and arrears are rising.

Also threatening is what Trump is doing. If his protectionist policies interrupt trade, you're going to see companies being squeezed. They're not going to make the export sales they expected, and will pay more for imports.

Finally, banks are having problems of they hold Italian government bonds. Germany is unwilling to use European funds to bail them out. Most investors expect Italy to do exit the euro in the next three years or so. It looks like we're entering a period of anarchy, so of course people are parking their money in the short term. That means that they're not putting it into the economy. No wonder the economy isn't growing.

[Jul 29, 2018] Cult of GDP is a damaging mental disease. With the size of the USA financial sector it is grossly distorted.

Jul 29, 2018 | www.theamericanconservative.com

Winston July 28, 2018 at 10:00 am

GDPs (2017):

California – $2.751 trillion
Texas – $1.707 trillion
Russia – $1.578 trillion

Likbez:

@Winston July 28, 2018 at 10:00 am

Cult of GDP is a damaging mental disease. With the size of the USA financial sector it is grossly distorted.

The inflated costs of pharmaceutical and medical-industrial complex add another large portion of air into the US GDP.

Surveillance Valley (Amazon, Apple, Facebook, Google, Microsoft, etc ) firms valuations are also inflated and their contribution to the USA economics is overestimated in GDP.

There is also such thing as purchase parity. To compare GDP between countries, you must use purchasing power parity. To compare GDP without calculating in purchasing parity is just naïve.

I suspect that in real purchasing power Russia is close to Germany (which means it it is the fifth largest economy)

The USA still has dominance is key technologies and cultural influence.

[Oct 31, 2017] Why GDP Is Fake by Eric ZUESSE

Example with GDP growth after natural disaster is pretty illuminating...
Notable quotes:
"... GDP = Consumption + Investment + Government Spending + Net Exports ..."
"... or more succinctly ..."
"... GDP = C + I + G + NX ..."
"... where consumption (C) represents private-consumption expenditures by households and nonprofit organizations, investment (I) refers to business expenditures by businesses and home purchases by households, government spending (G) denotes expenditures on goods and services by the government, and net exports (NX) represents a nation's exports minus its imports. ..."
"... Here's Dave's explanation: ..."
"... Once I learned about accounting, I figured out why the GDP metric wasn't sufficient. What is missing? ..."
"... The balance sheet. ..."
"... Hurricanes are a direct hit to your nation's balance sheet. The national income statement goes up because of increased spending to replace lost assets, but the "equity" part of the national balance sheet ends up taking a hit in direct proportion to the damage that occurred. Even if you rebuild everything just the way it was, your assets remain the same, while your liabilities have increased. ..."
"... We know this because we use the balance sheet equation: equity = assets – liabilities. Equity is another word for wealth. ..."
"... Before hurricane: ..."
"... wealth = (house + car) – (home debt + car debt) ..."
"... After hurricane, you rebuild your house, and buy a new car, using borrowed money: ..."
"... wealth = (house + car) – (2 x home debt + 2 x car debt) ..."
"... Wealth (equity) has declined by the sum (home debt + car debt) ..."
"... So when you see pictures of a hurricane strike, you can now look through all that devastation and see the impact on the balance sheet. National equity (wealth) just dropped by the amount of damage inflicted by the hurricane. Whether it is ever rebuilt doesn't actually matter; that equity is just gone. Destruction is always a downside for equity – even if there is a temporary positive impact on the income statement. ..."
"... Isn't it interesting that the mainstream economists, who don't use banks, debt, or money in their models, largely ignore balance sheets and instead just looks at the income statement alone? Its almost as if the entire education system was organized so that people paid no attention to banks, debt, and money. Who do you think might benefit from our flock of PhD economists ignoring the extremely profitable debt-elephant in the room, and its purveyors, the banks? ..."
"... without resistance from academics whom those aristocrats likewise finance ..."
Oct 26, 2017 | www.strategic-culture.org

Gross Domestic Product, or GDP, is the most commonly used measure and ranking of a nation's economy. According to the OECD and Wikipedia, its definition is: "an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs) " No subtractions are included in it for debts that were undertaken in order to generate the given "gross values added." A trillion dollars of increased assets (additional "gross values" of "production") adds a trillion dollars to GDP, even if all of it was produced by increasing the debts by a trillion dollars: only the assets-side of the balance-sheet is relevant to GDP.

However, wealth is assets minus liabilities; it is assets minus debts; it is not assets alone. Therefore, a nation's wealth has no necessary relationship at all to a nation's GDP, because the nation's wealth is its assets minus its liabilities, not its assets regardless of its liabilities (such as GDP is).

Britannica provides this definition of "GDP" : "Gross domestic product (GDP), total market value of the goods and services produced by a country's economy during a specified period of time. It includes all final goods and services -- that is, those that are produced by the economic agents located in that country regardless of their ownership and that are not resold in any form. It is used throughout the world as the main measure of output and economic activity." In this definition, too, no subtractions are included in it for the debts. Britannica then goes on to state:

GDP = Consumption + Investment + Government Spending + Net Exports

or more succinctly

GDP = C + I + G + NX

where consumption (C) represents private-consumption expenditures by households and nonprofit organizations, investment (I) refers to business expenditures by businesses and home purchases by households, government spending (G) denotes expenditures on goods and services by the government, and net exports (NX) represents a nation's exports minus its imports.

Kimberly Amadeo at "The Balance" uses that definition , and opens her article about GDP by saying: "Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-owned companies. If they are located within the country's boundaries, the government counts their production as GDP."

However: is GDP, in fact , "the best way to measure a country's economy"? If you're a banker whose income is derived from having a lot of money owed to you, then, of course, you will want to fool the public into believing that ignoring debts that were incurred in producing a given GDP is "the best way to measure a country's economy," because the more fools that believe it, the more income you will make, because people won't be measuring their economic welfare by deducting from it the debts they owe. They will be deceived to think their country to be in better economic and financial position than it is, if the debts that it incurs are being ignored; this ignoring of debt in the ranking of nations' economies will make easier a government's taking on more debt than it should.

Roy H. Webb, of the Richmond Fed, headlined in 1994, "The National Income and Product Accounts" and he presented there a lengthy breakdown of how GDP is calculated, but, yet again, nowhere in that article did any form of the terms "debt" or "liability" appear.

Isn't it obvious, that GDP is a fraud -- and a very influential one?

MBA-Tutorials has an article "Shortcomings of GDP" , but it, too, doesn't mention, in any form, "debts" or "liabilities"; and, so, it, too, is fake.

Bob McTeer, former President of the Dallas Fed, headlined in Forbes on 31 October 2012, "Hurricane Sandy And The Shortcomings Of GDP" , and he opened: "Natural disasters, like Hurricane Sandy, provide periodic reminders, not of the shortcomings of GDP necessarily, but what GDP is designed to measure and what it is not designed to measure." In other words: the bankers excuse GDP because "it is not designed to measure" what it is being routinely used to measure. If the ordinary-language meaning of "GDP" is devoid of the liabilities-side of the balance-sheet, and ranks nations' economic performance in that way -- by ignoring any additional indebtedness that went into generating that additional "production" -- then what language was Dr. McTeer even writing in, there (since it wasn't ordinary language -- language as it's commonly understood)? That statement by McTeer, too, therefore, is deceit. In the rest of his article, he blathers on. And, nowhere in that article, either, are the words "debts" or "liabilities" used, in any form.

Deceit regarding GDP is routine, just as such a fake 'misuse' of "GDP" is routine. (It's really no "misuse" of the term, at all.) GDP is designed to be a misleading basis for ranking the economic performance of countries; it's used for the purpose it's intended for, because the purpose it's intended for is to deceive the public in this very way -- to ignore debt -- and, so, that's the way it's used.

However, Charles Hugh Smith, at several blogs, explained the matter honestly, instead of (as is normally done) as a representative of the debt-industries, when he headlined on 19 October 2017, "GDP Is Bogus: Here's Why" , and he presented there a superbly clear example, which applies not only to Hurricane Sandy, but to any natural disaster or war, and thus (by implication) constitutes a threat to not only the debt-industries (the financial firms), but also the man-made-disaster industries (the war-firms), such as Dwight Eisenhower famously (but only vaguely) referred to in his final words parting from the White House and handing it over to JFK in 1961, as "the military-industrial complex," against which Eisenhower vaguely was warning there.

Charles Hugh Smith's example, much clearer than McTeer's blather, had allegedly come from some accountant, "Dave," and presented (without linking to) the following:

Here's Dave's explanation:

Once I learned about accounting, I figured out why the GDP metric wasn't sufficient. What is missing?

The balance sheet.

Hurricanes are a direct hit to your nation's balance sheet. The national income statement goes up because of increased spending to replace lost assets, but the "equity" part of the national balance sheet ends up taking a hit in direct proportion to the damage that occurred. Even if you rebuild everything just the way it was, your assets remain the same, while your liabilities have increased.

We know this because we use the balance sheet equation: equity = assets – liabilities. Equity is another word for wealth.

Before hurricane:

wealth = (house + car) – (home debt + car debt)

After hurricane, you rebuild your house, and buy a new car, using borrowed money:

wealth = (house + car) – (2 x home debt + 2 x car debt)

Wealth (equity) has declined by the sum (home debt + car debt)

So when you see pictures of a hurricane strike, you can now look through all that devastation and see the impact on the balance sheet. National equity (wealth) just dropped by the amount of damage inflicted by the hurricane. Whether it is ever rebuilt doesn't actually matter; that equity is just gone. Destruction is always a downside for equity – even if there is a temporary positive impact on the income statement.

Isn't it interesting that the mainstream economists, who don't use banks, debt, or money in their models, largely ignore balance sheets and instead just looks at the income statement alone? Its almost as if the entire education system was organized so that people paid no attention to banks, debt, and money. Who do you think might benefit from our flock of PhD economists ignoring the extremely profitable debt-elephant in the room, and its purveyors, the banks?

By means of deceits such as using false measures of nations' economic performance, like that, the aristocracy and its agents, in all countries -- the owners of banks like HSBC, and of 'defense' contractors like Lockheed Martin, etc. -- can, and do, without resistance from academics whom those aristocrats likewise finance , use fake 'measures' of nations' economic performance, so as to advance their own private economic performances, by fooling their narcoticized public into accepting these economic and financial bloodsuckers, accepting them by ignoring whatever blood might be lost in the process. Or: are they, too, merely fools? They function more like vampires, than like fools. But, apparently, the victims -- here, the public -- just don't awake from this bite, and, so, it will probably continue until the next great economic crash, after which, yet again, the government will go into still more debt, in order to 'recover' from these 'mistakes'. That sounds like a good business to be in -- a stable business, of the "heads I win, tales you lose" type. It might not be irresistible, but no one is resisting it. Now, why would that be?

[Sep 17, 2017] GDP was never meant to be a measure of how well-off society is. Only under neoliberalism it has become such a fake indicator with huge propaganda value

Notable quotes:
"... "Here is my two cents: these three researchers may have just put the nail in the coffin of using production-side measures of the free economy-and that is not really all that bad. GDP is a measure of total production. It was ever meant to be a measure of how well-off society has become. ..."
"... While introduction of the concept of GDP and systematic its measurement (with all its warts, especially in calculation of "real GDP") was a great achievement, absolutization of GDP under neoliberalism and, especially, false equivalence between GDP growth and growth of the standard of living of population are dangerous neoliberal myths. ..."
"... We should fight neoliberal cult of GDP. ..."
"... Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what. ..."
Jun 12, 2017 | economistsview.typepad.com

Christopher H. , June 12, 2017 at 03:10 PM

Interesting post at Digitopoly by Shane Greenstein

"Here is my two cents: these three researchers may have just put the nail in the coffin of using production-side measures of the free economy-and that is not really all that bad. GDP is a measure of total production. It was ever meant to be a measure of how well-off society has become.

More to the point, maybe it is time to focus on the demand-side measures of free goods. In other words, you get a lot more for your Internet subscription, but nothing in GDP reflects that. For example, the price index for Internet services should reflect qualitative improvement in user experiences, and needs to improve."

libezkova said in reply to Christopher H.... , June 12, 2017 at 07:44 PM
While introduction of the concept of GDP and systematic its measurement (with all its warts, especially in calculation of "real GDP") was a great achievement, absolutization of GDP under neoliberalism and, especially, false equivalence between GDP growth and growth of the standard of living of population are dangerous neoliberal myths.

We should fight neoliberal cult of GDP.

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

In 1962, Kuznets stated:

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

[Jun 12, 2017] Digitopoly The Value of Free in GDP

Jun 12, 2017 | www.digitopoly.org
Did the rise of free information technology improve GDP? It is commonly assumed that it did.

After all, the Internet has changed the way we work, play, and shop. Smartphones and free apps are ubiquitous. Many forms of advertising moved online quite a while ago and support gazillions of "free" services. Free apps changed leisure long ago-just ask any teenager or any parent of a teenager. Shouldn't that add up to a lot?

Think again. The creation of the modern system of GDP economic accounting was among the greatest economic inventions of the 20th century. Initially created in the US and Britain, this system has been improved for decades, and, for all intents and purposes, it is the system in every modern government around the world today.

Although this system contains some flexibility, it also has its rigidities, especially when it comes to free services. I expect the answer to sit awkwardly with most readers. Nonetheless, a little disciplined thinking yields a few insights about the modern experience, and that is worth the effort.

... ... ...

This was an obvious problem when commercial television first spread using advertising as its primary revenue source. The consumption is free, and the only revenue comes from advertising. When the TV experience improved- say, as it moved from black and white to color - GDP recorded only the revenue for television sets and advertising, not the user experience.

There was hope that industry specialists would find some underlying proportional relationship between consumption of services and advertising revenue-for example, between the time watching TV and the value of watching commercials. Such proportionality would have been very handy for economic accounting, because it would yield an easy proxy for improvement in the quality of services. Accountants would merely have to examine improvement in advertising revenue.

Alas, no such relationship could be found. Just look at the history of television to understand why. Television has gotten much better over the last few decades, but-for many reasons-total advertising has not grown. The economics is just not that simple.

A similar problem has arisen today. Search engines attract users, and that generates tens of billions of dollars of revenue from advertisers, and that revenue contributes to GDP. However, the services delivered by search contribute no revenue and, by definition, contribute nothing to GDP. With so many free services today, this weakness in GDP accounting seems awkward. It does not matter how amazing the services are, nor how much they have improved over time. Any improvement in the quality of search services is not a contribution in GDP except insofar as it generates more advertising dollars.

Recently, three professional economists- Leonard Nakamura, Jon Samuels, and Rachel Soloveichik-tried to wade into this topic again, and tried something experimental and novel. They wondered how GDP would change if these free services were reconceived as a barter.

Kien says: Jun 10, 2017 at 11:43 pm

Hi, thanks for your wonderful blog.

A good way to try and quantify the value of free goods/services is to estimate (as best as one can) how those goods/services make us healthier and/or live longer active lives. A solution free environment and public parks are good examples of free services that make us healthier. In principle, the social media (e.g., Facebook) and voluntary work could reduce social alienation, and make people healthier.

On the other hand, some goods/services that contribute to the GDP can have negative effects on health & wellbeing – e.g., gambling.

Just a suggestion!

Kien

[May 29, 2017] Difficulties of comparing GDP between various countries: exampe of Russia

May 29, 2017 | www.moonofalabama.org
Jen | May 27, 2017 10:02:53 PM | 61
Khalid @ 51:

"... but GDP is a better measure of what is available to each country for domestic use ..."

I've now found where you've got your information about Russia having a smaller economy than South Korea, Canada and Italy. It's at this link:
http://databank.worldbank.org/data/download/GDP.pdf

The same list tells me that Saudi Arabia had a greater GDP than Sweden, Belgium, Norway and Denmark did in 2015. But does this information tell us anything about the health or long-term prospects for the Saudi economy compared to the economies of the other countries I just mentioned? Does the information tell us how well average Saudi citizens live compared to how well the average citizen lives in Sweden? Does the information say anything about what Saudi Arabia produces and/or exports, and about the range of products the KSA makes, compared to what Sweden does?

I'm sure you can do better than come up with a stack of numbers and nothing else that explains or qualifies them.

Oh and BTW, most labour migration between Russia and other countries is made up of Central Asian migrants travelling to Russia to work in construction and other jobs requiring little or no technical skills, or to study in the country's universities, and going back home to visit family on special occasions (like Persian New Year) or help gather in local harvests. Money flows in the form of remittances between Russia and Central Asian countries like Uzbekistan and Tajikistan tend to be out of Russia and into those other countries.

"Tajikistan: Migrant Remittances Now Exceed Half of GDP"
http://www.eurasianet.org/node/68272

"Remittances Inflows to Uzbekistan, Tajikistan and Kyrgyzstan in 2016: Current Trends and Prospects"
http://www.ayu.edu.tr/static/aae_haftalik/aae_bulten_en_80.pdf

The Economist "From Russia with Love"
http://www.economist.com/news/finance-and-economics/21688441-remittances-are-good-thing-except-when-they-stop-russia-love

/div

Khalid | May 28, 2017 1:40:29 AM | 65

@61. So GDP is a measure of what is produced in the country. GNP adds or subtracts from it money that is sent from elsewhere. Russia with a significantly larger GNP compared to GDP is a net recipient of income inflow, the Central Asian migrants not withstanding.

There are two potential problems with higher GNP. Firstly, Taxes on the income being sent have been paid in a different country. So for example the millions of Mexicans who send money from US to Mexico pay their taxes in US. The Mexican government does not see any of that revenue. Secondly the money coming is primarily spent via consumption. While this may help the local economy a little bit there is also demand for more infrastructure to support this added consumption but the government is not getting revenue to address this need for greater infrastructure and is always trying to play catch up.

Most countries with higher GNP (compared to GDP) continue to have weak economies susceptible to the ravages of the World economy. Russia is no exception. A weak economy cannot support a strong military without significantly sacrificing spending for improving it citizens well being. There are a number of countries maintaining large armies (for various reasons) that are disproportionate compared to their economic power. Russia is an extreme case of this. And the Russian citizens suffer because of this.

Jackrabbit | May 28, 2017 3:40:48 AM | 68
Kalid @50:
Russia has an economy that is smaller than that of South Korea, smaller than Canada, smaller than Italy.
On the basis of purchasing power parity (PPP) , Russia has an economy that is more than TWICE that of South Korea or Canada and 61% greater than Italy's.

The Russian economy is about 20% that of USA but the Russian per capita GDP economy grew faster than USA, Canada, or Italy from 1990-2015.

<> <> <> <> <> <> <> <> <> <>

2015 per capita, adjusted for PPP multipled by current population (from Wikipedia):

> USA: 18.244

> RF+Crimea: 3.639

> Italy: 2.258

> South Korea: 1.782

> Canada: 1.556

dh | May 27, 2017 11:49:10 AM | 15

[May 08, 2017] Goods and services in Russia are considerably less expensive than in the West (and this includes the cost of producing fighter jets or rockets), so for such purposes GDP PPP is a better indicator than is nominal GDP

Some interesting notes about difficulty of comparing GDP of various countries, in this case the USA and Russia.
Notable quotes:
"... Russia's overall GDP PPP places it slightly below Germany - 6th place in the world ..."
"... But the US GDP is of an different structure. Compared it is overblown with pure financial sales and "hedonistic adjustments". More is blown by the culture. In the US much more everyday things relies on money. In case of case they are all worth nothing. Furthermore, if it comes to conflicts than the whole US Infrastructure has to be "revalued", and i doubt that it can withheld some stress tests. ..."
"... Over the years, the Pentagon encouraged Congress to move parts of national security spending out of its budget to the extent that almost half is found outside the DOD. The USA really spends over a trillion dollars a year. For example, nuclear weapons research, testing, procurement, and maintenance is found in the Dept of Energy budget. ..."
"... [AKA "SmoothieX12"] ..."
"... No serious analyst takes US GDP as 18 trillion dollars seriously. A huge part of it is a creative bookkeeping and most of it is financial and service sector. ..."
"... In general, overall power of the state (nation) is not only in its "economic" indices. I use Barnett's definition of national power constantly, remarkably Lavrov's recent speech in the General Staff Academy uses virtually identical definition. ..."
Apr 17, 2017 | www.unz.com

Anonymous , April 17, 2017 at 5:31 am GMT

Russia spent almost 5.4% of GDP on military spending. The US last year spent 3.3% and with Trump's proposed increase this number will increase by a few decimal points.

Russia is a middle income country while the US is a rich country, in the top 10 of GDP per capita. If oil prices don't substantially improve and Russia continues to spend the way it does on the military it will simply go broke.

Sources: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita (Russia is between Mexico and Suriname)

https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

@AP
Goods and services in Russia are considerably less expensive than in the West (and this includes the cost of producing fighter jets or rockets), so for such purposes GDP PPP is a better indicator than is nominal GDP. In terms of GDP PPP, Russia is of course not on par with the United States but is considerably higher than Mexico. It is in the same neighborhood as places such as Hungary.

Russia's overall GDP PPP places it slightly below Germany - 6th place in the world :

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

@Lewl42
Russia is a middle income country while the US is a rich country, in the top 10 of GDP per capita.

But the US GDP is of an different structure. Compared it is overblown with pure financial sales and "hedonistic adjustments". More is blown by the culture. In the US much more everyday things relies on money. In case of case they are all worth nothing. Furthermore, if it comes to conflicts than the whole US Infrastructure has to be "revalued", and i doubt that it can withheld some stress tests.

If oil prices don't substantially improve and Russia continues to spend the way it does on the military it will simply go broke

No country that relies on oil ( Russia do not) has made substantial improvements. Normally they are problem states where the problems made by oil are solved by money.

So from my point of view the opposite is true. Russia has made the big mistake to open itself to the west and was bitten. Now they readjust (with a border to china). Thank's to the US Oligarchs which thrown away that chance for they're primitive Neanderthal tribe thinking.

@Carlton Meyer
Over the years, the Pentagon encouraged Congress to move parts of national security spending out of its budget to the extent that almost half is found outside the DOD. The USA really spends over a trillion dollars a year. For example, nuclear weapons research, testing, procurement, and maintenance is found in the Dept of Energy budget.

http://www.pogo.org/straus/issues/defense-budget/2016/americas-1-trillion-national-security-budget.html

And as others have noted, GDP is a measure of activity, not prosperity. For example, mortgage refinancing creates lots of GDP, but no real wealth. Hurricanes and arson are good for GDP too!

@5371

Stupid beyond belief. Countries can't go broke doing something, if they control the natural and human resources they need to accomplish it. In addition, you apparently did not read Smoothie's explanation of why just comparing the sums spent is silly.
@Joe Wong
"Russia is a middle income country while the US is a rich country, in the top 10 of GDP per capita." this is very funny, how about the 20 trillions of US national debt and it is skyrocketing fast? If you only count asset without counting liability US maybe in the top 10 GDP per capita, but if you count net asset the US is in the negative GDP per capita, a broke nation. Perhaps it is American Exceptionalism logic, claiming credit where credit is not due, living in a world detached from reality.

"If oil prices don't substantially improve and Russia continues to spend the way it does on the military it will simply go broke." this is even funnier, Russian does not use USD in Russia, nor Russian government pay its MIC in USD, meanwhile Russian Central Bank can print Ruble thru the thin air just like the Fed, why does oil price have any relationship with Russian internal spending? Another example of "completely triumphalist and detached from Russia's economic realities" which is defined by meaningless Wall Street economic indices and snakeoil economic theories and rhetoric taught in the western universities.

Andrei Martyanov [AKA "SmoothieX12"] , Website

... ... ...

P.S. No serious analyst takes US GDP as 18 trillion dollars seriously. A huge part of it is a creative bookkeeping and most of it is financial and service sector. Out of very few good things Vitaly Shlykov left after himself was his "The General Staff And Economics", which addressed the issue of actual US military-industrial potential.

Then come strategic, operational and technological dimensions. You want to see operational dimension -- look no further than Mosul which is still, after 6 months, being "liberated". Comparisons to Aleppo are not only warranted but irresistible.

In general, overall power of the state (nation) is not only in its "economic" indices. I use Barnett's definition of national power constantly, remarkably Lavrov's recent speech in the General Staff Academy uses virtually identical definition.

[Apr 20, 2017] You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is output , of course, remains a complete mystery

Notable quotes:
"... Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point–structure of GDP. ..."
"... In general, we speak here different languages and I may only refer you back to Michael Lind's quote in my text. Judged in a larger, geopolitical framework, one can observe very clearly the process of US literally running out of resources and no amount of "raised capital" can change it. This is not to speak about the whole house of cards of Pax Americana which rested on US military imperial mythology. Once this mythology is debunked (the process which is ongoing as I type it) the house of cards folds. ..."
"... Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point--structure of GDP. ..."
"... You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is "output", of course, remains a complete mystery, same as many other services, once one considers the "quality" of education in US public schools which reflects in the most profound way on US labor force which increasingly begins to look like a third world one. ..."
www.unz.com
Andrei Martyanov says: • Website Show April 18, 2017 at 2:34 pm GMT
@inertial You just illustrated my point. Facebook vs. Gazprom market caps - all that shows is that Facebook has access to vastly larger amounts of capital than Gazprom. Well, duh.

Market capitalization is determined mostly by institutional investors - mutual funds, pension funds, insurance companies, etc. - who pool private savings and channel them into various investments. There are massive amounts of such savings available in USA; in Russia, not so much.

In Russia, the government is just about the only major saver and investor. This works fine in areas where the government must play a role, such as weapons manufacture. In other areas, enterprises that need capital to develop must either accumulate it themselves over the years (which puts limit on growth,) or get the government to help them out, or borrow abroad at usurious rates. That's not good. Ideally, Russian enterprises should enter Russian stock or fixed income market and raise as much capital as they need.

As for Boeing, yes it's a gem. But it does have some difficulties in raising capital. It's been balancing on the edge of bankruptcy for years and, unlike Facebook, it has huge liabilities. Incidentally, Boeing very much engages in all that "useless" high finance stuff. The buy and sell and issue bonds and short term paper; I don't know if they issue options but they certainly trade them. They don't believe that they are performing "virtual transactions with virtual money;" on the contrary, they consider this and essential part of the business, as important as building engines or whatever. Perhaps they know something you don't?

Finally, a tip. Any "expert" who doesn't treat US (or other) economic data seriously is an idiot.

Market capitalization is determined mostly by institutional investors – mutual funds, pension funds, insurance companies, etc. – who pool private savings and channel them into various investments. There are massive amounts of such savings available in USA; in Russia, not so much.

Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point–structure of GDP.

You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is "output", of course, remains a complete mystery, same as many other services, once one considers the "quality" of education in US public schools which reflects in the most profound way on US labor force which increasingly begins to look like a third world one.

https://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=a&5102=15

In general, we speak here different languages and I may only refer you back to Michael Lind's quote in my text. Judged in a larger, geopolitical framework, one can observe very clearly the process of US literally running out of resources and no amount of "raised capital" can change it. This is not to speak about the whole house of cards of Pax Americana which rested on US military imperial mythology. Once this mythology is debunked (the process which is ongoing as I type it) the house of cards folds.

Ondrej , April 18, 2017 at 3:20 pm GMT

@Andrei Martyanov
Market capitalization is determined mostly by institutional investors – mutual funds, pension funds, insurance companies, etc. – who pool private savings and channel them into various investments. There are massive amounts of such savings available in USA; in Russia, not so much.
Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point--structure of GDP.

You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is "output", of course, remains a complete mystery, same as many other services, once one considers the "quality" of education in US public schools which reflects in the most profound way on US labor force which increasingly begins to look like a third world one.

https://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=a&5102=15

In general, we speak here different languages and I may only refer you back to Michael Lind's quote in my text. Judged in a larger, geopolitical framework, one can observe very clearly the process of US literally running out of resources and no amount of "raised capital" can change it. This is not to speak about the whole house of cards of Pax Americana which rested on US military imperial mythology. Once this mythology is debunked (the process which is ongoing as I type it) the house of cards folds. Maybe this would help to someone:-)

„Excluding as we do noncapitalist change, we have to define that word which good economists always try to avoid : capitalism is that form of private property economy in which innovations are carried out by means of borrowed money, which in general, though not by logical necessity, implies credit creation. A society, the economic life of which is characterized by private property and controlled by private initiative, is according to this definition not necessarily capitalist, even if there are, for instance, privately owned factories, salaried workers, and free exchange of goods and services, either kind or through the medium of money. The entrepreneurial function itself is not confined to capitalist society, since such economic leadership as it implies would be present, though in other forms, even in a primitive tribe or in a socialist community." (Schumpeter 1939, 216)

This means that in perfect equilibrium interest would be zero in the sense that it would not be a necessary element of the process of production and distribution, or that pure interest tends to vanish as the system approaches perfect equilibrium. Proof of this proposition is very laborious, because it involves showing why all the theories which lead to a different result are logically unsatisfactory.

Hence, the money market with all that happens in it acquires for us a much deeper significance than can be attributed to it from the standpoint just glanced at. It becomes the heart, although it never becomes the brain, of the capitalist organism (Schumpeter 1939)

http://classiques.uqac.ca/classiques/Schumpeter_joseph/business_cycles/schumpeter_business_cycles.pdf

[Apr 14, 2017] Declining consumption of electricity in the USA might mean that GDP data are fudged

Apr 14, 2017 | economistsview.typepad.com
libezkova , April 13, 2017 at 08:51 AM
Another face of secular stagnation and outsourcing of manufacturing:

The De-Electrification of the U.S. Economy - Bloomberg View
https://www.bloomberg.com/view/articles/2017-04-12/the-de-electrification-of-the-u-s-economy

== quote ==
In much of the world, of course, electricity demand is still growing. In China, per-capita electricity use has more than quadrupled since 1999. Still, most other developed countries have experienced a plateauing or decline in electricity use similar to that in the U.S. over the past decade. And while the phenomenon has been most pronounced in countries such as the U.K. where the economy has been especially weak, it's also apparent in Australia, which hasn't experienced a recession since 1991.
== end of quote ==

From comments:

One interesting data point that should be within that "industrial" number: "U.S. aluminum production has gone from 2.5 million tons in 2005 to 1.6 million in 2015." http://www.seattletimes.com...

Aluminum smelting uses a lot of electricity, and that's a 36% decline. I'm not sure of the total electricity use of the aluminum industry in the U.S. but it's conceivably big enough to make a difference in that last graph.

anne -> libezkova... , April 13, 2017 at 09:16 AM
The essay is surely interesting, but what "might" it mean?
Fred C. Dobbs -> anne... , April 13, 2017 at 11:54 AM
(Bloomberg)
... In an article published in the Electricity Journal in 2015, former Lawrence Berkeley energy researcher Jonathan G. Koomey, now a consultant and a lecturer at Stanford, and Virginia Tech historian of science Richard F. Hirsch offered five hypotheses for why electricity demand had decoupled from economic growth (which I've paraphrased here):

In an article published in the Electricity Journal in 2015, former Lawrence Berkeley energy researcher Jonathan G. Koomey, now a consultant and a lecturer at Stanford, and Virginia Tech historian of science Richard F. Hirsch offered five hypotheses for why electricity demand had decoupled from economic growth (which I've paraphrased here):
1.State and federal efficiency standards for buildings and appliances have enabled us to get by with less electricity.
2.Increased use of information and communications technologies have also allowed people to conduct business and communicate more efficiently.
3.Higher prices for electricity in some areas have depressed its use.
4.Structural changes in the economy have reduced demand.
5.Electricity use is being underestimated because of the lack of reliable data on how much energy is being produced by rooftop solar panels. ...

https://law.stanford.edu/publications/electricity-consumption-and-economic-growth-a-new-relationship-with-significant-consequences/

anne -> Fred C. Dobbs... , April 13, 2017 at 05:18 PM
I appreciate these conjectures or hypotheses, which I had read initially and should have set down as well. The problem is there is no clear defining of the hypotheses, or provision for coming to a tentative conclusion as to the effect of any hypothesis.

The matter is of course important, and I will welcome further consideration.

libezkova -> anne... , April 13, 2017 at 04:28 PM
"what "might" it mean?"

It might mean that GDP data are fudged.

[Apr 04, 2017] The GDP Is a Flawed But Magical Indicator by Leonid Bershidsky

GDP is a classic junk science, some sort of 'economic Lysenkoism" and "cult of GDP is an immanent feature of neoliberal propaganda designed to substitute arbitrary metric for more scientific measurements of the wellbeing of people. That's a neoliberal lie: "That's why per capita GDP is one of the strongest predictors of happiness measured through people's subjective perceptions of their well-being. "
And it is generally connected strongly only with well being of financial oligarchy, which in the USA is at all time high. Preetty much disconned with well being of ordinary people as declining wages signify in the USA>
Sitting regular neoliberal stooges like Feldstein is just Argument from authority - Wikipedia thanks god he did not cite Mankiw.
Notable quotes:
"... GDP calculation isn't an exact science ..."
"... As Federal Reserve Chair Janet Yellen recently pointed out, GDP is "a pretty noisy indicator" at best. ..."
Apr 03, 2017 | www.bloomberg.com

Economists have long argued that the gross domestic product has many flaws as a measure of well-being and policy success. Yet there's a good reason it's still being used: There's a certain magic to it, despite its science being somewhat iffy.

QuickTake GDP: Measuring Income or Well-Being?

On Monday, the National Bureau of Economic Research published a paper by Harvard economist Martin Feldstein detailing an argument he has been making for years -- that GDP calculations underestimate actual growth and productivity. This optimistic argument is based on the difficulty of measuring changes in the quality of products and services, and therefore of life. Feldstein points out, for example, that official measurements, for the most part, only catch quality improvements if a product or service requires more expensive inputs: "If it doesn't cost more to produce a product or service this year than it did last year, there has been no improvement." That way, for example, leaps in the quality of health care -- when a patient who used to need a week in hospital to recover from a cataract operation is now discharged on the day of the procedure -- are not measured. The way official statistics measure the introduction of new products, too, doesn't account for their actual contribution to consumers' well-being or to the economy as a whole.

According to Feldstein, government messaging should be more optimistic to make sure people understand that their savings will buy more in the future. Goods and services are improving lives more than price increases would indicate.

Nobel laureate Joseph Stiglitz has long held the opposite view -- that the GDP as measured today may overestimate well-being. For example, it counts any increase in government spending as positive, even though these increases may be inefficient or even counterproductive. And as for those improvements in health care quality that form the basis of Feldstein's argument, they, too, can be overestimated in the U.S. because health care spending there is higher than other countries while the outcomes are the same or worse.

Some recent work also argues against the theory, supported by Feldstein, that the recent productivity slowdown is due to a failure of measurement. Last year, Chad Syverson of the University of Chicago pointed out that even the most generous estimates of the value added by the growth in digital technology aren't big enough to bring productivity growth to its pre-2004 trajectory. Another analysis by International Monetary Fund economist Marshall Reinsdorf found that their unmeasured effect on productivity could only be small. Statistics fail to record some of the added value because of the tech sector's use of tax havens, he wrote. But even the "free" internet services provided now are counted through the advertising they attract. And some of the improvements that tech created for consumers don't belong in the GDP calculation in the first place: If they save a user some personal time, that stays in the home and doesn't affect economic activity. (Even if it did, it might be canceled out by the time our digital addictions take out of our productive workday.)

All the back and forth about how GDP is calculated is only possible because, despite all the flaws, the measure somehow ends up feeling right. The distortions often end up canceling themselves out.

In 2013, Nicholas Oulton of the London School of Economics' Center for Economic Performance wrote a paper to disprove the notion that U.K. economic growth had been overestimated because official calculations overstated the contribution of banking to GDP. He showed that "if banking output has been overstated, then the output of some other industry or industries must have been understated."

Earlier this year, a team of IMF economists attempted to figure out how GDP numbers would have changed for a number of developed countries had they used an outdated deflation method, still used by China and India. It turned out that the effects wouldn't have been consistently negative or positive for most countries; for Western European countries, on aggregate, the effects would have been small. The team's recommendation was that more countries adopt the more progressive deflation methods now used by most of the G20 -- but their research made it clear that in some cases the difference in the results would be tiny.

As much as GDP calculation isn't an exact science , the results usually make sense. That's why per capita GDP is one of the strongest predictors of happiness measured through people's subjective perceptions of their well-being.

It's fine to argue for better measures of well-being. These measures, however, add even harder-to-measure indicators, such as levels of social support, freedom and generosity. For many countries, these data are either unavailable or subjectively colored. The choice is between engineering and science: The former will accept an imperfect approximation, while the latter will always strive for perfection. As Federal Reserve Chair Janet Yellen recently pointed out, GDP is "a pretty noisy indicator" at best. Yet it remains extremely useful as a reference.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

[Mar 24, 2017] GDP and statistican charlatans

Notable quotes:
"... With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...] ..."
Mar 24, 2017 | economistsview.typepad.com
libezkova -> pgl... Reply Friday, March 24, 2017 at 10:38 AM , March 24, 2017 at 10:38 AM

Do you really think that GDP is "econofact"?

Or is it "econo-opinion" ?

People like you pray on the altar of GDP growth, don't they?

Look at the formula and shake from fear because the formula: 

GDP = C + G + I + NX

or 

GDP = consumption + government+ investment + (exports − imports)

is clearly open to huge machinations (BTW G includes purchase of weapons for the military; you get the idea what I am hinting at). Also all the contribution of financial firms to GDP should probably be counted with negative sign ;-). Because large part of it is either racket or illicit rent extraction from the society which weakens the "real" economy.

The problem with all major statistical aggregates is that "it is better not to see them being made."

And if you measure GDP via 

GDP = Compensation of employees + Gross operating surplus + Gross mixed income

are you sure that you will get the same metric?

The same is true for unemployment, inflation, oil production, and other "politically sensitive" economic metrics.

When I see a person who quotes GDP figures or unemployment without discussing his view of its reliability and margin of error (for example for GDP via inflation, or the method of including "services" part of economy; same for the difference between fake U3 and more realistic U6 for unemployment), I suspect that particular person is either charlatan, or neoclassical economist ( which is basically highly intersecting subsets ).

We probably should introduce the term "statiness" in analogy with "mathiness" (or would "number racket" be a better term?)

As Kuznets told to "statistical charlatans" long ago:

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria.

With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known.

And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

[Mar 24, 2017] The Mechanical Turn in Economics and Its Consequences

Notable quotes:
"... In the same way, neoliberals are no different. They aren't bad people – they just see their policies as right and just because those policies are working well for them and the people in their class, and I don't think they really understand why it doesn't work for others – maybe, like Adam Smith, they think that is the "natural state" .. ..."
"... Read the first sentence of the Theory of Moral Sentiments – it makes an assumption which is the foundation of all of Adam Smith. He asserted that all men are moral. Morality in economics is the invisible hand creating order like gravity in astronomy. Unfortunately, Adam Smith's assumption is false or at least not true enough to form a sound foundation for useful economic theory. ..."
"... But "morality" means different things to different people. Smith only saw the morality of his own class. For example, I am sure a wealthy man would consider it very moral to accumulate as much money as he could so that he would be seen by his peers as a good and worthy man who cares for his future generations and the well being of his class – he doesn't see this accumulation as amoral – whilst a poor man may think that kind of accumulation is amoral because he thinks that money could be better used provide for those without the basic needs to survive ..."
"... "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." ..."
"... Another I remember from Smith was something like, "The law exists to protect those who have much from those who have little." Sounds about right. ..."
"... One of Steve Keen's favourite analogies is astronomy. Neoclassical economics is like Ptolemy's epicycles; assume the Earth is at the centre, and that the planets orbit in circles and simply by adding little circles-epicycles-you can accurately describe the observed motion of the planets. The right epicycles in the right places can describe any motion. But they can't explain anything, they add nothing to understanding, they subtract from it, because they are false but give the illusion of knowledge. Drop the assumptions and you can begin to get somewhere. ..."
"... Steve Keen seems to have latched onto this in the last year or so, pointing out that all production is driven by energy. And the energy comes ultimately from the sun. Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons extracted from plant and animal remains). ..."
"... I have a question about a similar thing. Simon Kuznetz is credited as someone who has invented modern concept of GDP and he revolutionized the field of economics with statistical method (econometrics). However, Kuznets , in the same report in which he presented modern concept of GDP to US congress, wrote following(from wikipedia): ..."
"... "The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. ..."
"... All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above. Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what." ..."
"... "So , my question is why economists keep treating GDP as some scared metric when its creator himself deems it not reliable? Why all qualifications about GDP by Kuznetz is ignored by most of the economists nowadays?"@Vedant ..."
"... That is your explanation right there. Large abstract numbers such as GDP obscure social issues such as "the personal distribution of income." and the effort that goes into creating that income. Large abstract numbers obscure the moral dimension that must be a part of all economic discussion and are obscured by statistics and sciencism. As the genius of Mark Twain put it, "There are lies, damned lies and statistics." Beware the credentialed classes! ..."
"... Interesting. There is a great book by John Dupré called 'Human Nature and the Limits of Science (2001)", which tackles this subject in a general way: the facts that taking a mechanistic model as a paradigm for diverse areas of science is problematic and leads to myopia. ..."
"... He describes it as a form of 'scientific imperialism', stretching the use of concepts from one area of science to other areas and leading to bad results (because there are, you know, relevant differences). As a prime example, he mentions economics. (When reading EConned;s chapter of the science ( 'science') of economics, I was struck by the similar argument.) ..."
"... Soddy was a scientist. He should have written as a scientist with definitions, logic and rigour, but he wrote like a philosopher, full of waffle and unsubstantiated assertions like other economists. It is unscientific to apply universal laws discovered in physics and chemistry to economics without proving by observations that those laws also apply to economics. ..."
"... I get irritated by radical free-marketeers who when presented with a social problem tend to dogmatically assert that "The free market wills it," as if that ended all discussion. It is as if the free market was their God who must always be obeyed. Unlike Abraham, we do not need to obey if we feel that the answer is unjust. ..."
"... Gibbon's Decline and Fall of the Roman Empire ..."
"... The moralistic explanations for the disintegration of the (Western) Roman Empire were long ago discarded by all serious analysis of late antiquity. More practical explanations, especially the loss of the North African bread basket to the Vandals, are presented in the scholarly work these days. ..."
"... That book of Gibbon's is an incredible achievement. If it is not read by historians today, it is their loss. Its moral explanations, out of fashion today, are actually quite compelling. They become more so when read with de Tocqueville's views of the moral foundations of American township democracy and their transmission into the behavior, and assumptions, of New Englanders, whose views formed the basis of the federal republican constitution. ..."
"... The loss of the breadbasket was problematical, too. And it may be that no civilization, however young and virile, could withstand the migrations forever, as they withstood or absorbed them, with a few exceptions, for eight hundred years. But the progressive losses to the migratory tribes may have been a symptom of the real, "moral," cause of the decline. ..."
"... From 536-539AD the entire planet suffered a staggering holocaust. Krakatoa blew up - ejecting so much dust that it triggered a 'nuclear winter' that lasted through those years. ..."
"... It was this period that ended agriculture in North Africa. ( Algeria-Tunisia ) The drought blew all of the top soil into the Med. It was an irreversible tragedy. ..."
"... Economics is not science, simply because economics does not take facts seriously enough to modify flawed theories. ..."
"... In college I couldn't help but notice the similarities between modern economic theory and the control theory taught in engineering. Not such a great fit though, society is not a mechanical governor. ..."
"... " ..."
Mar 21, 2017 | www.nakedcapitalism.com
Yves here. This post takes what I see as an inconsistent, indeed, inaccurate stance on Adam Smith, since it depicts him as advocating laissez faire and also not being concerned about "emotions, sentiment, human relations and community." Smith was fiercely opposed to monopolies as well as businessmen colluding to lower the wages paid to workers. He also saw The Theory of Moral Sentiments as his most important work and wanted it inscribed on his gravestone.

Nor is it true that Smith advocated government not intervening in business. From Mark Thoma , quoting Gavin Kennedy :

Jacob Viner addressed the laissez-faire attribution to Adam Smith in 1928 ..Here is a list extracted from Wealth Of Nations:

"Viner concluded, unsurprisingly, that 'Adam Smith was not a doctrinaire advocate of laissez-faire'.

By Douglass Carmichael, perviously a Professor at University of California at Santa Cruz and a Washington DC based consultant, which clients including Hewlett-Packard, World Bank, Bell laboratories, The White House and the State Department. For the last ten years he has focused on the broad social science issues relevant to rethinking humanity's relationship to nature. Cross posted from the Institute for New Economic Thinking website

With Adam Smith, and hints before in Ricardo and others, economics took the path of treating the economy as a natural object that should not be interfered with by the state. This fit the Newtonian ethos of the age: science was great, science was mathematics; science was true, right and good.

But along the way the discussion in, for example, Montaigne and Machiavelli - about the powers of imagination, myth, emotions, sentiment, human relations and community - was abandoned by the economists. (Adam Smith had written his Theory of Moral Sentiments 20 years earlier and sort of left it behind, though the Wealth of Nations is still concerned with human well-being.) Gibbon's Decline and Fall of the Roman Empire was published in 1776, the same year as Smith's Wealth , but hardly read today by most economists.

In philosophy and the arts (romanticism among others) there was great engagement in these issues economics was trying to avoid. But that philosophy and art criticism have not been widely read for many years.

The effect of ignoring the human side of lives was to undermine the social perspective of the "political," by merging it with the individually focused "interest." So, instead of exploring the inner structure of interest (or later utility or preference), or community feeling and the impact of culture, these were assumed to be irrelevant to the mechanics of the market. Politics, having to do with interest groups and power arrangements, is more vague and harder to model than economic activity.

Those who wanted economics to be a science were motivated by the perception that "being scientific" was appreciated by the society of the time, and was the path to rock-solid truth. But the move towards economics as a science also happened to align with a view of the landed and the wealthy that the economy was working for them, so don't touch it. We get the equation, embracing science = conservative. This is still with us because of the implication that the market is made by god or nature rather than being socially constructed. Since economics is the attempt at a description of the economy, it was more or less locked in to the naturalist approach, which ignores things like class and ownership and treated capital as part of economic flow rather than as a possession that was useable for social and political power.

Even now, economics still continues as if it were part of the age of Descartes and avoids most social, historical and philosophical thought about the nature of man and society. Names like Shaftesbury and Puffendorf, very much read in their time, are far less known now than Hobbes, Descartes, Ricardo, Mill and Keynes. Karl Polanyi is much less well known than Hayek. We do not learn of the social history such as the complex interplay in Viennese society among those who were classmates and colleagues such as Hayek, Gombrich, Popper and Drucker. The impact of Viennese culture is not known to many economists.

The result is an economics that supports an economy that is out of control because the feedback loops through society and its impact of the quality of life - and resentment - are not recognized in a dehumanized economics, and so can't have a feedback correcting effect.

The solution, however, is not to look for simplicity, but to embrace a kind of complexity that honors nature, humans, politics, and the way they are dealt with in philosophy, arts, investigative reporting, anthropology and history. Because the way forward cannot be a simple projection of the past. We are in more danger than that.

Anthony Pagden, in Why the Enlightenment is Still Important , writes that before the enlightenment, late feudalism and the Renaissance, "The scholastics had made their version of the natural law the basis for a universal moral and political code that demanded that all human beings be regarded in the same way, no matter what their culture or their beliefs. It also demanded that human beings respect each other because they share a common urge to 'come together,' and it required them to offer to each other, even to total strangers, help in times of need, to recognize 'that amity among men is part of the natural law.' Finally, while Hobbes and Grotius had accepted the existence of only one natural right - the right to self-preservation - the scholastics had allowed for a wide range of them." -

Pagen also writes, "The Enlightenment, and in particular that portion with which I am concerned, was in part, as we shall now see, an attempt to recover something of this vision of a unified and essentially benign humanity, of a potentially cosmopolitan world, without also being obliged to accept the theologians' claim that this could only make sense as part of the larger plan of a well-meaning, if deeply inscrutable, deity."

But as Pagen shows, that effort was overcome by market, technical and financial interests.

The reason this is so important is that the simple and ethical view in Smith (and many other classical economists if we were to read them) that it was wrong to let the poor starve because of manipulated grain prices, was replaced by a more mechanical view of society that denied human intelligence except as calculators of self interest. This is a return to the Hobbesian world leading to a destructive society: climate, inequality, corruption. Today, the poor are hemmed in by so many regulations and procedures (real estate, education, police) that people are now starved. Not having no food, but having bad food, which along with all the new forms of privation add up to a seriously starved life, is not perceived by a blinded society to be suffering. Economics in its current form - most economics papers and college courses - do not touch the third rail of class, or such pain.

HeadShaker , March 21, 2017 at 11:13 am

Interesting. I've been reading (thanks to an intro from NC) Mark Blyth's "Austerity" and, thus far, seems to imply, if not outright state, that Adam Smith was quite suspicious of government intervention in the economy. The "can't live with it, can't live without it, don't want to pay for it" perspective. The bullet points you've listed above seem to refute that notion.

justanotherprogressive , March 21, 2017 at 11:39 am

Adam Smith tried to make a moral science out of what his class wanted to hear. If he had actually gone into those factories of his time, he might have had a different opinion of what labour was and how there was no "natural state" for wages, but only what was imposed on people who couldn't fight back. If he had gotten out of his ivory tower for a while, he might have had a different opinion of what those owners of stock were doing. He also might have had different views on trade if he could have seen what was happening to the labourers in the textile industries in France. And I could go on. But instead he created a fantasy that has been the basis for all economic thinking since.

In the same way, neoliberals are no different. They aren't bad people – they just see their policies as right and just because those policies are working well for them and the people in their class, and I don't think they really understand why it doesn't work for others – maybe, like Adam Smith, they think that is the "natural state" ..

Sorry, but there needs to be a Copernican Revolution in Economics just as there was in science. We have to realize that maybe Adam Smith was wrong – and I know that will be hard – just as it was hard for people to realize that the Earth wasn't the center of the universe.

Since I am retired, maybe I will go back to school, hold my nose and cover my lying eyes long enough to finish that Economics degree, so that I can get good access to all the other windows in Economics. I can't really believe I am the only person thinking this way – there must be some bright people out there who have come to similar conclusions and I would dearly love to know who they are.

Lyonwiss , March 21, 2017 at 2:49 pm

Read the first sentence of the Theory of Moral Sentiments – it makes an assumption which is the foundation of all of Adam Smith. He asserted that all men are moral. Morality in economics is the invisible hand creating order like gravity in astronomy. Unfortunately, Adam Smith's assumption is false or at least not true enough to form a sound foundation for useful economic theory.

justanotherprogressive , March 21, 2017 at 3:18 pm

But "morality" means different things to different people. Smith only saw the morality of his own class. For example, I am sure a wealthy man would consider it very moral to accumulate as much money as he could so that he would be seen by his peers as a good and worthy man who cares for his future generations and the well being of his class – he doesn't see this accumulation as amoral – whilst a poor man may think that kind of accumulation is amoral because he thinks that money could be better used provide for those without the basic needs to survive

Lyonwiss , March 22, 2017 at 2:29 am

You have not read the first sentence of the book, where he stated what he meant – to me, it is his general statement of universal morality.

lyman alpha blob , March 21, 2017 at 3:03 pm

I've read a fair amount of Wealth of Nations although far from all of it and my take was that Smith was describing the economic system of his time as it was , not necessarily as it should or must be. Smith gets a bad rap from the left due to many people over the last 200+ years hearing what they wanted to hear from him to justify their own actions rather than what he actually said.

I'm cherry picking a bit here since I don't have the time to go through several hundred pages, but I think Smith might actually agree with you about the plight of labor and he was well aware of what the ownership class was up to –

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Adam Smith – Wealth of Nations

diptherio , March 21, 2017 at 7:00 pm

Yup, wish I would have had that one handy in my intro to micro course

Another I remember from Smith was something like, "The law exists to protect those who have much from those who have little." Sounds about right.

Grebo , March 21, 2017 at 4:58 pm

there needs to be a Copernican Revolution in Economics

One of Steve Keen's favourite analogies is astronomy. Neoclassical economics is like Ptolemy's epicycles; assume the Earth is at the centre, and that the planets orbit in circles and simply by adding little circles-epicycles-you can accurately describe the observed motion of the planets. The right epicycles in the right places can describe any motion. But they can't explain anything, they add nothing to understanding, they subtract from it, because they are false but give the illusion of knowledge. Drop the assumptions and you can begin to get somewhere.

digi_owl , March 22, 2017 at 1:36 pm

And that is exactly what Marx did, but then got himself sidetracked by trying to find (or create) support for his labor theory of value.

Actually most of what he writes in Capital basically refutes said theory, instead hinting at energy being the core source of value (how much food/fuel is needed to produce one unit, basically).

Steve Keen seems to have latched onto this in the last year or so, pointing out that all production is driven by energy. And the energy comes ultimately from the sun. Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons extracted from plant and animal remains).

mejimenez , March 21, 2017 at 1:41 pm

Since words have somewhat flexible boundaries, it's hard to tell from what perspective this response is looking at the history of science. Characterizing cybernetics as mechanistic would require an unusually broad definition of "mechanistic". Even a superficial reading of Norbert Wiener, Warren McCulloch, W. Ross Ashby, or any of the other early contributors to the discipline will make one aware that they were explicitly trying to address the limitations of simplistic mechanistic thinking.

In the related discipline, General Systems Theory, von Bertalanffy expressly argued that we should take our cues from the organic living world to understand complex systems. With the introduction of Second Order Cybernetics by Heinz von Foerster, Margaret Mead, Gregory Bateson and others, the role of a sentient observer in describing the system in which he/she is embedded becomes the focus of attention. Bateson was an original participant with many of the people mentioned above in the Macy conferences where cybernetics was first introduced. The bulk of his work was a direct attack on the mechanistic view of the natural world.

Of course, many writers treat cybernetics, General Systems Theory, and their related disciplines as pseudoscientific. But those are typically people who are firmly committed to mechanistic explanations.

Vedant , March 21, 2017 at 1:02 pm

Yves,

I have a question about a similar thing. Simon Kuznetz is credited as someone who has invented modern concept of GDP and he revolutionized the field of economics with statistical method (econometrics). However, Kuznets , in the same report in which he presented modern concept of GDP to US congress, wrote following(from wikipedia):-

"The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification.

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.
Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what."

So , my question is why economists keep treating GDP as some scared metric when its creator himself deems it not reliable? Why all qualifications about GDP by Kuznetz is ignored by most of the economists nowadays?

Allegorio , March 21, 2017 at 2:48 pm

"So , my question is why economists keep treating GDP as some scared metric when its creator himself deems it not reliable? Why all qualifications about GDP by Kuznetz is ignored by most of the economists nowadays?"@Vedant

" Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income."

That is your explanation right there. Large abstract numbers such as GDP obscure social issues such as "the personal distribution of income." and the effort that goes into creating that income. Large abstract numbers obscure the moral dimension that must be a part of all economic discussion and are obscured by statistics and sciencism. As the genius of Mark Twain put it, "There are lies, damned lies and statistics." Beware the credentialed classes!

Mucho , March 21, 2017 at 1:20 pm

Interesting. There is a great book by John Dupré called 'Human Nature and the Limits of Science (2001)", which tackles this subject in a general way: the facts that taking a mechanistic model as a paradigm for diverse areas of science is problematic and leads to myopia.

He describes it as a form of 'scientific imperialism', stretching the use of concepts from one area of science to other areas and leading to bad results (because there are, you know, relevant differences). As a prime example, he mentions economics. (When reading EConned;s chapter of the science ( 'science') of economics, I was struck by the similar argument.)

Lyonwiss , March 21, 2017 at 2:31 pm

Science does not imply only mechanistic models, which may be appropriate for physics, but not economics. Science is a method of obtaining sound knowledge by iterative interaction between facts and theory.

http://www.asepp.com/what-is-science/

UserFriendly , March 22, 2017 at 1:37 am

Just because equilibrium is shitty mechanistic model to try and stamp onto economics doesn't mean that all scientific modeling of economics futile. Soddy just about derived MMT from the conservation of energy in 1921.

http://habitat.aq.upm.es/boletin/n37/afsod.en.html?iframe=true&width=100%&height=100%

And refined it in a book in 1923.

http://dspace.gipe.ac.in/xmlui/bitstream/handle/10973/21274/GIPE-009596.pdf?sequence=3&isAllowed=y

UserFriendly , March 22, 2017 at 2:00 am

excellent job with the prepositions there. sigh. WAKE UP!

Lyonwiss , March 23, 2017 at 2:50 am

Soddy was a scientist. He should have written as a scientist with definitions, logic and rigour, but he wrote like a philosopher, full of waffle and unsubstantiated assertions like other economists. It is unscientific to apply universal laws discovered in physics and chemistry to economics without proving by observations that those laws also apply to economics.

Soddy needed to have developed a scientific methodology for economics first, before stating his opinions which are scientifically unproven like most economic propositions.

http://www.asepp.com/methodology/

Jim A. , March 21, 2017 at 1:36 pm

I get irritated by radical free-marketeers who when presented with a social problem tend to dogmatically assert that "The free market wills it," as if that ended all discussion. It is as if the free market was their God who must always be obeyed. Unlike Abraham, we do not need to obey if we feel that the answer is unjust.

PKMKII , March 21, 2017 at 1:57 pm

Gibbon's Decline and Fall of the Roman Empire was published in 1776, the same year as Smith's Wealth, but hardly read today by most economists.

Other than as a reflection of the sentiments of the time Gibbon was writing in, historians don't spend much time reading it either. The moralistic explanations for the disintegration of the (Western) Roman Empire were long ago discarded by all serious analysis of late antiquity. More practical explanations, especially the loss of the North African bread basket to the Vandals, are presented in the scholarly work these days.

PhilM , March 21, 2017 at 5:07 pm

That book of Gibbon's is an incredible achievement. If it is not read by historians today, it is their loss. Its moral explanations, out of fashion today, are actually quite compelling. They become more so when read with de Tocqueville's views of the moral foundations of American township democracy and their transmission into the behavior, and assumptions, of New Englanders, whose views formed the basis of the federal republican constitution.

The loss of the breadbasket was problematical, too. And it may be that no civilization, however young and virile, could withstand the migrations forever, as they withstood or absorbed them, with a few exceptions, for eight hundred years. But the progressive losses to the migratory tribes may have been a symptom of the real, "moral," cause of the decline.

After all, the Romans did not always have that breadbasket; indeed, they had to conquer it to get it, along with the rest of the mighty and ancient civilizations of the Mediterranean and beyond, using the strengths derived from the mores of their martial republic. The story of the Punic Wars is a morality play in history, as much as anything else. But the main problem was the dilution of the Roman republican mores into a provincial stew.

And after that nice detached remark, about which historians can surely natter on in the abstract, I'll toss in this completely anti-historicist piece of nonsense: I think it's actually much the same problem the Americans are having today, as the mores of the founders have dissolved into the idea that the nation is about national government, centralized administration, world leadership, global domination through military might, and imperialist capitalism. That is not a national ethic that leads to lasting nobility of purpose and moral strength-as George Washington and Ike Eisenhower both pointed out.

blert , March 21, 2017 at 6:48 pm

Dendrochronology ( tree ring dating & organic history ) has established a wholly new rationale for the termination of the Roman Empire the re-boot of the Chinese and Japanese cultures and the death of a slew of Meso-American cultures.

From 536-539AD the entire planet suffered a staggering holocaust. Krakatoa blew up - ejecting so much dust that it triggered a 'nuclear winter' that lasted through those years.

The Orientals actually heard the blasts recognized that they emminated from the Indonesian islands. ( Well, at least to the south. ) The erruption and the weather was duly recorded by Court scribes.

Roman accounts assert that 90% of the population of Constantinople died or fled. ( mostly died ) The Emperor and his wife were at the dockside ready to flee - when she talked him back off the boat. Her reasoning was sound: it's Hell everywhere. He won't have any authority once he leaves his imperial guard.

It was this period that ended agriculture in North Africa. ( Algeria-Tunisia ) The drought blew all of the top soil into the Med. It was an irreversible tragedy.

This super drought triggered the events in Beowulf - and the exodus of the Petrans from Petra. They marched off to Mecca and Medina both locations long known to have mountain springs with deep water. The entire Arabian population congregated there.

This was the founding population amongst which Mohammed was raised many years later.

The true reason that Islam swept through Araby and North Africa was that both lands were still largely de-populated. The die-off was so staggering that one can't wrap ones mind around it.

Period art is so bleak that modern historians discounted it until the tree ring record established that this trauma happened on a global scale.

Lyonwiss , March 21, 2017 at 2:21 pm

Economics is not science, simply because economics does not take facts seriously enough to modify flawed theories.

http://www.asepp.com/facts-and-economic-science/

justanotherprogressive , March 21, 2017 at 3:00 pm

Or throw them out! I remember the very first thing I was taught in Economics 101 about supply and demand and how they would balance at an equilibrium price. It didn't take much thinking to realize that there is no equilibrium price and that an equilibrium price was exactly the last thing suppliers or demanders wanted, and that the price of a good depended on who had the most power to set the price. Yet, we had to accept the "supply and demand theory" as coming directly from God. It's as if we were taught in Chemistry that the only acceptable theory of bonding possible was the hydrogen-oxygen bond and even though we could see with our own eyes that hydrogen also bonds to carbon, we should throw that out because it is an aberration from "acceptable theory" ..

PhilM , March 21, 2017 at 4:44 pm

Yes, coming from God; Platonic, like a Form. Economics is written in Forms, like "homo economicus" and "the efficient market." But we live in the Cave, where the markets that humans actually make are sad imitations of the Forms in the textbooks.

There's a lot good in the post, I think; noting the important philosophical underpinnings and challenges to Economics, and particularly in making it a moral, and therefore political and "social" science. But it's great to see where people's use of "incantatory names from the past" is called out by the curator. It's a pet peeve.

digi_owl , March 22, 2017 at 1:45 pm

Economics is the last "science" to hold onto the notion of equilibrium. The rest has moved on to complex systems/chaos theory, first demonstrated in meteorology. Trying to apply complex systems to economics have been the goal of Steve Keen's work for several decades now.

Rosario , March 21, 2017 at 2:38 pm

In college I couldn't help but notice the similarities between modern economic theory and the control theory taught in engineering. Not such a great fit though, society is not a mechanical governor.

craazyboy , March 22, 2017 at 7:20 am

Ha. That's the same thing that got economists so excited. Things is, an engineering student attempting to model a simple system with two moving parts cares a great deal about whether the moving parts are connected by a spring, or ball screw, or shock absorber, or lever, or even invisible stuff like a temperature gradient when coming up with the system math model. Economists seem to think wtf is the difference?

Next, if the math gets a bit unwieldy as the number of moving parts increase, which it does in a hurry, they decide to simplify the math. Next, assume they have perfect sensors for everything and system lag can assumed to be zero for talking purposes, and in research papers too. Next, hysteresis effects due to bent parts, leaky valves and stretched springs are assumed not to exist. Congress has the "Highway Bill" thingy to address that.

Next, the guy with the control knob will do the "right thing". Or better yet, a "market" is doing the control knob. There could be "intermediaries", but these are modeled as zero loss pieces of golden wire and gold plated connectors.

Finally, money comes from batteries and there is no such thing in the real world like "shorts", "open circuits", or "semiconductors" with their quantum tunneling properties.

Other than that, it's all good!

knowbuddhau , March 21, 2017 at 5:23 pm

Thanks for this, and especially the heads up about the author's take on Smith. This is exactly what I'm on about. Not only are there more ways of knowing than the infamous mechanical, it itself should've died long ago.

I learned that from this Chomsky lecture I found last year: Noam Chomsky: The machine, the ghost and the limits of understanding; Newton´s contribution to the study of mind" . (Quotes are from Science, Mind, and Limits of Understanding , an essay that seems to me to be the basis of the lecture.) Pretty sure I mentioned it in comments somewhere.

The author stresses economics is stuck in the age of Descartes. The history of Newton's refutation of Descartes's mechanical philosophy is very interesting. Yes, refutation. Descartes's mechanical philosophy is as dead as a dodo. So why does it still plague us? Obviously, because thinking of and acting on nature as if it were all just one great big machine works at getting you paid, much better than that wishy-washy humanism crap. /f (facetious).

I used to go on and on against reducing everything to mechanisms, and I largely blamed Newton. I was wrong.

I've spent an hour trying to boil this down. Ain't happenin. Apologies for the length.

The background is the so-called "mechanical philosophy" – mechanical science in modern terminology. This doctrine, originating with Galileo and his contemporaries, held that the world is a machine, operating by mechanical principles, much like the remarkable devices that were being constructed by skilled artisans of the day and that stimulated the scientific imagination much as computers do today; devices with gears, levers, and other mechanical components, interacting through direct contact with no mysterious forces relating them. The doctrine held that the entire world is similar: it could in principle be constructed by a skilled artisan, and was in fact created by a super-skilled artisan. The doctrine was intended to replace the resort to "occult properties" on the part of the neoscholastics: their appeal to mysterious sympathies and antipathies, to forms flitting through the air as the means of perception, the idea that rocks fall and steam rises because they are moving to their natural place, and similar notions that were mocked by the new science.

The mechanical philosophy provided the very criterion for intelligibility in the sciences. Galileo insisted that theories are intelligible, in his words, only if we can "duplicate [their posits] by means of appropriate artificial devices." The same conception, which became the reigning orthodoxy, was maintained and developed by the other leading figures of the scientific revolution: Descartes, Leibniz, Huygens, Newton, and others.

Today Descartes is remembered mainly for his philosophical reflections, but he was primarily a working scientist and presumably thought of himself that way, as his contemporaries did. His great achievement, he believed, was to have firmly established the mechanical philosophy, to have shown that the world is indeed a machine, that the phenomena of nature could be accounted for in mechanical terms in the sense of the science of the day. But he discovered phenomena that appeared to escape the reach of mechanical science. Primary among them, for Descartes, was the creative aspect of language use, a capacity unique to humans that cannot be duplicated by machines and does not exist among animals, which in fact were a variety of machines, in his conception.

As a serious and honest scientist, Descartes therefore invoked a new principle to accommodate these non-mechanical phenomena, a kind of creative principle. In the substance philosophy of the day, this was a new substance, res cogitans, which stood alongside of res extensa. This dichotomy constitutes the mind-body theory in its scientific version. Then followed further tasks: to explain how the two substances interact and to devise experimental tests to determine whether some other creature has a mind like ours. These tasks were undertaken by Descartes and his followers, notably Géraud de Cordemoy; and in the domain of language, by the logician-grammarians of Port Royal and the tradition of rational and philosophical grammar that succeeded them, not strictly Cartesian but influenced by Cartesian ideas.

All of this is normal science, and like much normal science, it was soon shown to be incorrect. Newton demonstrated that one of the two substances does not exist: res extensa. The properties of matter, Newton showed, escape the bounds of the mechanical philosophy. To account for them it is necessary to resort to interaction without contact. Not surprisingly, Newton was condemned by the great physicists of the day for invoking the despised occult properties of the neo-scholastics. Newton largely agreed. He regarded action at a distance, in his words, as "so great an Absurdity, that I believe no Man who has in philosophical matters a competent Faculty of thinking, can ever fall into it." Newton however argued that these ideas, though absurd, were not "occult" in the traditional despised sense. Nevertheless, by invoking this absurdity, we concede that we do not understand the phenomena of the material world. To quote one standard scholarly source, "By `understand' Newton still meant what his critics meant: `understand in mechanical terms of contact action'."

It is commonly believed that Newton showed that the world is a machine, following mechanical principles, and that we can therefore dismiss "the ghost in the machine," the mind, with appropriate ridicule. The facts are the opposite: Newton exorcised the machine, leaving the ghost intact. The mind-body problem in its scientific form did indeed vanish as unformulable, because one of its terms, body, does not exist in any intelligible form. Newton knew this very well, and so did his great contemporaries.

And later:

Similar conclusions are commonplace in the history of science. In the mid-twentieth century, Alexander Koyré observed that Newton demonstrated that "a purely materialistic pattern of nature is utterly impossible (and a purely materialistic or mechanistic physics, such as that of Lucretius or of Descartes, is utterly impossible, too)"; his mathematical physics required the "admission into the body of science of incomprehensible and inexplicable `facts' imposed up on us by empiricism," by what is observed and our conclusions from these observations.

So the wrong guy was declared the winner of Descartes vs. Newton, and we've been living with the resultant Frankenstein's monster of an economy running rampant all this time. And the mad "scientists" who keep it alive, who think themselves so "realistic" and "pragmatic" in fact are atavists ignorant of the last few centuries of science. But they do get paid, whereas I (relatively) don't.

Vatch , March 21, 2017 at 5:40 pm

Alexander Koyré observed that Newton demonstrated that "a purely materialistic pattern of nature is utterly impossible (and a purely materialistic or mechanistic physics, such as that of Lucretius or of Descartes, is utterly impossible, too)"

I think that Newton considered phenomena like gravity, magnetism, and optics to be non-material, perhaps even spiritual, and separate from matter. Modern physicists would disagree, and would consider gravity and electro-magnetism to be purely material phenomena. Newton didn't prove that the world is non-mechanical; he showed that objects do not need to touch for them to have influence on each other.

It is still quite possible that there are non-material phenomena, but those would be separate from gravity and electro-magnetism, which Newton considered non-material.

diptherio , March 21, 2017 at 7:10 pm

It is still quite possible that there are non-material phenomena

Like love, courage, hope, fear, greed and compassion?

Vatch , March 21, 2017 at 7:37 pm

Sure! The existence of souls is another possibility (even for Buddhists, although I suppose they would have to be pudgalavadins to believe in this).

Plenue , March 22, 2017 at 1:54 pm

Are all products of the brain. I don't see how the results of the interaction of electrical impulses and chemicals are non-material. Magic is not an explanation for anything.

M Quinlan , March 21, 2017 at 7:50 pm

So Newton formulated his theories because of his belief in Alchemy and not, as I had thought, despite it. Discussions like this are what make this site so great.

blert , March 21, 2017 at 7:08 pm

All modern economic thought ( 1900+ ) has been corrupted by the arrogance of Taylor's Time & Motion Studies. The essence of which is that bean counters can revolutionize economic output by statistics and basic accounting.

AKA Taylorism.

Big Government is Taylorism as practiced.

At bottom, it arrogantly assumes that if you can count it, you can optimise it.

The fact is that 'things' are too complicated.

Taylor's principles only work in a micro environment. His work started in machine shops, and at that level of simplicity, still applies.

Its abstractions and assumptions break down elsewhere.

MOST economic models in use today are the grandsons of Taylorism.

They are also the analytic engines that have driven the global economy to the edge of the cliff.

RBHoughton , March 21, 2017 at 7:24 pm

For my penny's worth the sentence "Today, the poor are hemmed in by so many regulations and procedures (real estate, education, police) that people are now starved" reveals the main problem.

Too many of the most lucrative parts of every national economy have been closed off by politicians and reserved for their friends.

Peter L. , March 23, 2017 at 9:55 pm

The introductory remarks on Adam Smith reminded me of a funny exchange between David Barsamian and Noam Chomsky. Barsamian complements Chomsky on his research on Adam Smith :

DAVID BARSAMIAN: One of the heroes of the current right-wing revival is Adam Smith. You've done some pretty impressive research on Smith that has excavated a lot of information that's not coming out. You've often quoted him describing the "vile maxim of the masters of mankind: all for ourselves and nothing for other people."

NOAM CHOMSKY: I didn't do any research at all on Smith. I just read him. There's no research. Just read it. He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised.

People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be.

And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits.

And here is a link to Adam Smith's poignant denunciation of division of labour:

http://www.econlib.org/library/Smith/smWN20.html#V.1.178

This mention of division of labor is, as Chomsky points out, left out of the index of the University of Chicago scholarly edition! Of George Stigler's introduction Chomsky claims, "It's likely he never opened The Wealth of Nations. Just about everything he said about the book was completely false."

I recommend reading the entire paragraph at the link above. Smith writes:

"The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it. "

[Mar 19, 2017] They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product

Notable quotes:
"... Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to. ..."
"... "Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial." ..."
"... For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity. ..."
"... "Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function. ..."
"... That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection. ..."
"... By and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel. ..."
"... BTW what happened to Krugman's perfunctory twice a year column on inequality? ..."
"... The nicotine addict cares about as much about 'risk under uncertainty' as Harford. ..."
Mar 19, 2017 | economistsview.typepad.com
Fred C. Dobbs : March 18, 2017 at 03:02 AM

, 2017 at 03:02 AM
What if Sociologists Had as Much Influence as
Economists? https://nyti.ms/2m9yDHL via @UpshotNYT
NYT - NEIL IRWIN - MARCH 17, 2017

Walk half a city block in downtown Washington, and there is a good chance that you will pass an economist; people with advanced training in the field shape policy on subjects as varied as how health care is provided, broadcast licenses auctioned, or air pollution regulated.

Turn on cable news, and the guests who opine on the weighty public policy questions of the day quite often have some title like "chief economist" underneath their name. And there are economists sprinkled throughout the government - there is an entire council of them advising the president in most administrations, if not yet in this one.

But as much as we love economics here - this column is named Economic View, after all - there just may be a downside to this one academic discipline having such primacy in shaping public policy.

They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product.

Another academic discipline may not have the ear of presidents but may actually do a better job of explaining what has gone wrong in large swaths of the United States and other advanced nations in recent years.

Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to.

"Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial."

As a small corrective, I took a dive into some sociological research with particular relevance to the biggest problems facing communities in advanced countries today to understand what kinds of lessons the field can offer. In 1967, Senator Walter Mondale actually proposed a White House Council of Social Advisers that he envisioned as a counterpart to the well-entrenched Council of Economic Advisers. It was never created, but if it had been, this is the sort of advice it might have been giving recent presidents.

For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.

"Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function.

That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection.

(When the job search becomes a blame game
http://phy.so/310028844 via @physorg_com)

It seems plausible that this helps explain why so many Americans who lost jobs in the 2008 recession have never returned to the labor force despite an improved job market. Mr. Sharone is working with career counselors to explore how to put this finding to work to help the long-term unemployed. ...

ilsm -> Fred C. Dobbs... , March 18, 2017 at 03:43 AM
I thought they did, and they stay on one side of the shark.
JohnH -> Fred C. Dobbs... , March 18, 2017 at 07:54 AM
By and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel.

BTW what happened to Krugman's perfunctory twice a year column on inequality?

ilsm : , March 18, 2017 at 03:41 AM
Tobacco survived buying politicians and better lawyers. And Madison Ave.

Inference (what Harford call "fact") may be truth in the confidence band.

The nicotine addict cares about as much about 'risk under uncertainty' as Harford.

Climate change action (the idea that US should park the SUV and move in to the city) is denied in the same way.

"Facts" about the study populations are inferences to one making a 'decision'. If the decision maker is an addict....

Same for Obamacare idolatry.

[Feb 09, 2017] Path-dependence of measuring real GDP

Feb 09, 2017 | worthwhile.typepad.com
Nick Rowe

I normally try to avoid index number theory. Don't trust me on this.

It is well understood that real GDP is a very imperfect measure of welfare. We teach that in first year macro. That is not what this post is about. What I'm worried about is whether real GDP is an imperfect measure of itself. Does it have internal validity?

If better technology enabled producers of new goods to ramp up production more quickly to meet initial demand, would that cause the measured growth rate to fall? Initially an economy produces 100 kg of apples at $1 per kg. Then bananas get invented. After a long slow adjustment, the economy eventually reaches a new long run equilibrium and produces 50 kg of apples at $1 per kg and 50 kg of bananas at $1 per kg.

We know that nominal GDP stays the same at $100. But what happens to real GDP? The answer depends on what happened during the long slow process of adjustment. Was it supply, or demand, or both, that caused the slow adjustment?

To keep it simple, assume the price of apples is always $1 per kg (the central bank targets the price of apples). And assume the quantity of bananas produced and consumed increases slowly and continuously from 0 to 50 kg. And assume the statistical agency that measures GDP has access to continuous time data (so we can ignore the difference between Paasche, Laspeyres, and Fisher price indices ). Remember that Real GDP = Nominal GDP/Price Level. What happens to the price of bananas during the long slow adjustment period?

  1. Assume that supply and demand adjust equally slowly to the invention of bananas. It takes producers time to switch from producing apples to producing bananas, and it takes consumers time to switch from consuming apples to consuming bananas. So the price of bananas is constant at $1 per kg during the adjustment. The weights in the price index slowly change (with a falling number of apples and increasing number of bananas in the basket), but the price index stays constant, because neither price is changing. Real GDP is the same as it was before bananas were invented.
  2. Assume that supply adjusts more slowly than demand. Producers need a high price to give them the incentive to adjust. So the price of bananas starts out above $1, and slowly falls over time to $1. So the price index falls over time. Real GDP ends up higher than it was before bananas were invented.
  3. Assume that demand adjusts more slowly than supply. Consumers need a low price to give them the incentive to adjust. So the price of bananas starts out below $1, and slowly rises over time to $1. So the price index rises over time. Real GDP ends up lower than it was before bananas were invented.

Even if you say that my third case is implausible, and that demand always adjusts more quickly than supply, so the price of new goods (relative to existing goods) always starts out high and falls over time, that does not resolve the problem. The initial price of bananas, when they first appear on the market, depends on how many bananas can be grown in that very first season. Anything that enables producers of new goods to increase production for the initial roll-out will permanently reduce the measured level of real GDP.

The underlying problem is that we do not observe the price of bananas before bananas are invented. Unless you allow a discontinuous jump in real GDP the moment the new good hits the market, even if initial production is negligible, I don't think you can avoid this paradox.

Thanks to commenters (especially louis ) on my previous post, and to Brent Moulton via Twitter and David Rosnick via email. Errors and opinions are mine alone. As this starts as an apple economy, the large effect is to lower apple investment, but apple investment can't fall beneath depreciation (or more accurately, can't fall below depreciation at all) without affecting the price of apples, so there is a limit to how fast banana production can ramp up without causing this. Then there is the matter of relative investment costs, higher investment costs would lower growth while lower investment costs would increase growth and only if these were nearly equal would pricing be significant and even then only as one good among many. I expect pricing would have this effect which would differ depending on whether apples and bananas were treated as substitutes. It would take some time for bananas to even make it into baskets reducing their impact on measurements, missing both any discontinuity or initial change.

Posted by: Lord | February 07, 2017 at 11:52 AM Lord: there's lots of things that could be determining what's happening during the adjustment period. But for the question addressed in this post, the only thing that matters is whether the *relative* price of bananas starts out above one apple or below one apple. Dollar prices won't matter. I made the assumption that the *nominal* price of apples stays at $1 throughout, just to make the discussion simpler.

Posted by: Nick Rowe | February 07, 2017 at 12:48 PM Clarifying question about price indexes.

When a new good is introduced how is it factored int the price index ? For example suppose in period 1 100 apples are produced, and in period 2 50 Apples and 25 Banana. As the price of apples is fixed at $1 and GDP is fixed at $100 we know the price of bananas is $2. But how do we use this information to calculate the change in the price level between period 1 and period 2?

(I can see that once we have sales data and prices for all periods after bananas have appeared the logic that Nick describes kicks in - but I can't see how we deal with the introduction of bananas)

Posted by: Market Fiscalist | February 07, 2017 at 02:26 PM I think you're right. There's a technical literature on path dependence of Divisia indices (see, for example, a paper from Nick Oulton ). The chain indices used for GDP and the CPI are approximations to the continuous-time Divisia indices, so it's clearly relevant. The problem arises whenever new goods are introduced or old ones disappear, and would also be relevant when large shocks (e.g., major wars) take place that result in temporary major changes to consumption patterns. It's a hard problem, and though the literature suggested some potential solutions, they haven't reached the stage of statistical agency implementation.

Regarding your third case, sometimes sellers offer low initial prices for goods or services for which consumption is likely to be persistent -- new social networks, narcotics. So I don't think it's implausible.


Posted by: Brent Moulton | February 07, 2017 at 02:30 PM Your price index doesn't have to rise or fall monotonically with time. If we weight the price of each good by its share of nominal spending, then the starting and ending price indexes are the same – the price level is 1.

What happens in the meantime depends on supply and demand effects.

Imagine we're partway through the transition, and our economy sells 50kg of apples at $1 and 25kg of bananas at $2 (the remaining banana trees are waiting to mature). Nominal GDP is $100 as before, but the expense-weighted price index is 50%*($1 + $2) = $1.50, so real GDP is $66. This is lower than the long-run equilibrium of $100, but so is the actual fruit consumption. It would be accurate to call this economy comparatively depressed.

If banana trees mature quickly but can only be planted slowly, then maybe we're selling 90kg of apples at $1 and 10kg of bananas at $2. Nominal GDP is now $110, and the expense-weighted price index is about 1.18 (9/11*1 + 2/11*2), so the economy still looks depressed (real GDP of 93) but not as badly.

In the other case (apple trees are exogenously converted to banana trees but bananas are an acquired taste), then we might sell 90kg of apples at $1 and 10kg of bananas at $0.50. Nominal GDP is $95, and the price index is about 0.973 (9/9.5 + 0.25/9.5), so real GDP is about 97.6. If the new bana

In both cases, a statistician would observe a fall in real GDP due to a preference shift, followed by a rebound to its prior level. The unstated assumption for meaningful RGDP is that the utility of a price-index basket is approximately the same throughout the interval, and that's what's obviously untrue with preference changes.

Posted by: Majromax | February 07, 2017 at 02:49 PM Nick: You price the value of bananas at a constant $1 over the long period that it takes to ramp production from zero to 50 Kg.

It seems to me that you need to simultaneously recognize that to establish 'price', you need to have two persons trading and agreeing on a commonly accepted value ('price').

Hence, one option is that the banana producer is otherwise unemployed but now producing his first banana. The GDP should increase. OTOH, the buyer may be substituting goods so his contribution to increased GDP is negative, making the final GDP change zero. Further OTOH, the buyer may be borrowing to fund the purchase which would result in a valid GDP increase.

I think I am pointing out that just considering the producer's contribution to GDP is an incomplete exercise. A new product has several tentacles that impact GDP.

Posted by: Roger Sparks | February 07, 2017 at 02:59 PM MF: Brent Moulton (who commented just after you) knows much more than I do about how your question is normally answered by those who actually measure GDP. But I think the short answer is: "with difficulty". I think the point of this post is to say that that the problem posed by new goods does not get very small even if the expenditure share of new goods starts out very small when they are first introduced. The problem gets bigger over time.

Thanks Brent! Glad to hear I'm not totally out-to-lunch on this! Purely speculative, but I'm wondering if this might be part of the productivity growth slowdown puzzle? If new goods don't fall in price nowadays as much as they used to, simply because it's easier to build a big batch of new phones before releasing them (and/or they keep initial prices low because of network effects, as you say).

Posted by: Nick Rowe | February 07, 2017 at 03:11 PM Majro: "Your price index doesn't have to rise or fall monotonically with time. If we weight the price of each good by its share of nominal spending, then the starting and ending price indexes are the same – the price level is 1."

The share of nominal spending before bananas are invented? Or after we get to the new long run equilibrium? If "before", then the price of bananas doesn't matter at all.

Roger: "Nick: You price the value of bananas at a constant $1 over the long period that it takes to ramp production from zero to 50 Kg."

Why? And suppose we have a different example, where the (relative) price of bananas never reaches some constant level, because of ongoing technological improvement in growing bananas.

Posted by: Nick Rowe | February 07, 2017 at 05:03 PM Market Fiscalist: The way the CPI is calculated by statistical agencies, they would simply ignore the bananas in calculating the period 1 to period 2 price change. The "market basket" that is selected in period 1 doesn't have any bananas in it, so the price change from period 1 to period 2 is based solely on apples (no price change).

Nick: The standard (Konus) constant-utility cost-of-living index theory assumes that each period's consumption is on a stable demand curve. If, for your second case, you assume that it takes time for producers to switch but that each period consumers are consuming along their demand curve, I think the continuous time price index should come close to the true Konus cost-of-living index--especially if there isn't any discrete jump in consumption when the item is first introduced. Real GDP increases, and that's what we expect given that consumers prefer consuming A+B to A. Your first and third cases involve adjustment costs for consumers and thus don't fit easily in the standard cost-of-living index model.

Posted by: Brent Moulton | February 07, 2017 at 09:48 PM Brent: I was wondering if something like that would work. We could maybe imagine extending my second case to have a succession of new goods invented.

Posted by: Nick Rowe | February 08, 2017 at 04:09 AM Do they teach students in first year macro that when they later become professors they should say "we teach that in first year macro"? I see that expression a lot these days. It sounds like, this is truth. ;)

I remember Kotlikoff once using it when I suggested to him that it might not be clarifying to say that the "true" debt is 119 gazillion dollars. "I have been teaching my students that for 20 years." Oh, well could you then please stop writing that AND stop confusing your young charges?

More seriously, I am curious how important you think this index number issue might be compared with the more basic issue of measuring and aggregating individual utility. What is GDP supposed to correlate with? Back in the day it was about the flow of nominal demand but then seemed to morph into aggregate real goodness.

I love your work. Thanks.

Posted by: Gerard MacDonell | February 08, 2017 at 08:21 AM At risk of straying too far off topic, let's think of this in a trade context.
Instead of bananas being new to the world, let's say they are just new to a market. Country A can produce only apples, Country B produces both apples and bananas. In country B, one apple is tradeable for one banana.
When country B opens up to trade with country A, suddenly there is a global jump in demand for bananas. The price of bananas in terms of apples rises in country B to induce the people to consume fewer bananas and more apples. A certain number of apples flows to country B in exchange for a smaller flow of bananas back to A.
A's GDP, in terms of apples, shouldn't change -- its apple crop is the same as it was the previous year, although consumers are better off due to trade.
You'd think B's GDP should rise, as the value of the bananas it produces is worth more in terms of apples than it used to be. Or would we just say that's a change in the price level and real GDP is unchanged? Seems like this depends on how you construct the price index.
Gains from trade are real, but it seems they would be tricky to capture in GDP framework

Posted by: louis | February 08, 2017 at 10:24 AM Gerard: thanks!

The main cases where I use that "we teach that in first year" line is (for example, like in this case) some anti-economist says "GDP is a bad measure of welfare!" thinking they are making some devastating new critique of economics.

How important is this particular issue, empirically? I don't know. And I first wanted to make sure my head was straight on the theory. But speculating wildly, I am wondering if the productivity growth slowdown might be caused by something like this? I have no evidence to back that up, but that is what is at the back of my mind about *possible* empirical relevance. It's less about utility per se (which was at the back of my mind in the last post) than productivity.

louis: only a little off-topic. I'm going to be a bit shaky on the answer. I *think* country B's real GDP stays the same, since it is measured in terms of the basket it produces. But its real income *measured in terms of the basket it consumes* will rise or stay the same, depending on whether we use a Paasch or Laspeyres index (old basket or new basket). More simply, if your Terms of Trade improve, real GDP can stay the same, but increase when NGDP is deflated by the CPI.

Posted by: Nick Rowe | February 08, 2017 at 10:42 AM Didn't Hausman address this issue back in the '90s?

Posted by: marcel proust | February 08, 2017 at 11:39 AM "this issue" == valuing newly introduced products.
Briefly (IIRC, and I may well not), the solution he presents for getting the price index right is to estimate a demand curve for bananas (presumably right after their introduction) and set the pre-introduction price to the point where demand is zero. This allows for comparison of the CPI's before and after bananas hit the market.

Posted by: marcel proust | February 08, 2017 at 11:51 AM marcel: yes. But that was a different question (trying to measure utility gains). And that assumes an extreme version of my case 2, where demand adjusts instantly and supply adjusts slowly.

Posted by: Nick Rowe | February 08, 2017 at 12:09 PM Let's get the same result but use the basket brigade model. Instead of a continuous result,m this result is the same but never leaves probability space.

Chiqita introduces bananas, and initially we love them. So the delivery trucks and consumer baskets are fuller than normal. Each time we move goods our cash cards swipe at market price, so the Savings and Loan machine is building the significant probability distribution of cash swipes in (deposit) or out (loan). The S&L machine enforces amortization on the full baskets and everyone pays a suprising 'rate' on their purchases.

As a result of the bananas, the yield curve is steeper. The S&L machine is forcing us to go to work and build bigger baskets, or develop a more granular distribution that we can make more frequent trips and keep our basket from ov er filling. If we choose the latter, we get more term points on the yield curve. Or, we can go home and work out a substitution between bananas and mangos, making our baskets fill normally again.

The key here is our sense of equilibrium, we know when our baskets ate optimally full. We know that because we hate waiting in line, so our sense of frustration stabilizes the queues. When queues ate sable, mean equals variance in our basket. At that condition, then every single person in the monetary zone can independently calculate the probability of the basket overflowing or underflowing. Supply then equals demand and container algebra works, we can pretend to be continuous.

It is Nicks model, fouled up a bit, but just recast as a sequence of probabilistic purchases.

Posted by: Matt Young | February 08, 2017 at 01:41 PM

[Feb 08, 2017] A Utilitarian Welfare Analysis of Trade Liberalization

econpapers.repec.org

The currently established welfare criterion used in international trade theory results in conclusions that are not only intellectually dishonest and deceptively misleading but are not as value free as is commonly believed. Although academic economists have devoted much effort to understanding the distributional effects of trade, the current welfare conclusions of trade basically ignore entirely the distributional effects. This paper argues that trade policy needs to be framed within a legitimate moral framework that moves distribution to the forefront. The welfare effects of trade should be judged by what actually happens, not by what could potentially happen in an idealized world with costless transfers.

In the first section the inadequacy of current international welfare economics is discussed. Second, the justification for using a utilitarian framework is developed along with a brief history of the doctrine and its role in Cambridge welfare economics. Next the properties of a utility function that would be realistic as well as having desirable mathematical properties are discussed. Welfare considerations would not be especially important if trade did not create significant redistributions; therefore the size of the redistributions relative to the efficiency gains from trade liberalization is examined. Finally, the welfare effects of trade liberalization using various trade models and simulations are discussed.

The current approach to the welfare analysis of trade is to follow the recommendation of Hicks and Kaldor and equate national welfare with real national income and ignore entirely how income is distributed. Although admitting that considering distribution involves an unscientific value judgment, numerous economists (such as I.M.D. Little, Frank Knight, Edward Chamberlin) have concluded that distribution is too important to ignore and it is better to consider it even if that makes the analysis less than scientific. As Blaug has stated (1978,p. 626), "the true function of welfare economics is to invade the discipline of applied ethics rather than to avoid it."

The basic objective of trade policy under modern welfare analysis therefore is to maximize national income. This outcome is considered optimal because of the Hicks-Kaldor compensation principle whereby everyone could potentially be made better off than in any other alternative with the appropriate lump sum transfers. For some, the possibility that these transfers could be made is sufficient, regardless of whether any transfers are actually made. For others, there is a naive belief that after all the income maximizing policies are implemented, that the government (or society) then consistently redistributes income in a manner consistent with its specific social welfare function. However, Rodrik (1997, p.30) is correct when he states that in regard to trade policy changes, "compensation rarely takes place in practice and never in full."

Even if society wanted to redistribute income, however, it can not be done in a zero costs lump sum fashion.

[Dec 11, 2016] Twenty percent of US GDP was created from thin air via QE of well over 4 Trillion dollars.

Dec 11, 2016 | peakoilbarrel.com
Watcher says: 12/10/2016 at 4:24 pm
Okay, look.

20% of US GDP was created from thin air via QE of well over 4 Trillion dollars. That doesn't even count whimsical creation over the same time period elsewhere. The ECB just yesterday extended their QE program so that it will add up to about 2 Trillion Euros - which will have taken place over about 18 – 24 months.

There is no economy. That has all gone away, and there is no way in hell these bond and bond packages on central bank balance sheets are going to be retired (thereby extracting that money from the system overall) and so It's Not Coming Back. Probably Ever.

This is critical to oil because we do micro-economic evaluations of what wells are profitable and which are not, and our analysis and conclusions make less and less sense as we've seen from the non profitable activity going on. That's symptomatic of the disease.

Nothing was "fixed" from 2008 onward, and that's not a swipe at Obama. It's not a swipe at anything. It's just reality. When you create 20% of your GDP by whimsy, the measure can't possibly mean anything. And that's global.

We all have to live in the world using money in our own microscopic bubbles of economy, but from the macro perspective, that's pretense, and it's pretense everything depends on. Just keep in mind Fed Governors themselves have been quoted saying "we're in completely uncharted territory. No one knows what is going to happen, and that includes us, despite the superb people we have on staff trying to figure it out."

Trump is the wildcard inserted into a world of wildcards. I can assure you if the administration strongly doesn't want Ford building cars in Mexico, they probably won't.

[Nov 07, 2016] Inside that Great Wage Growth Number

Notable quotes:
"... In our artificial economy real things do not matter so much, but politics and managing the perceptions of the public are of paramount importance. And so the 'Goldilocks' Jobs Report, which is how the business TV channels described that lukewarm piece of dreck, did little to rally the markets except fleetingly intraday. ..."
"... The headline includes ALL employees, but if you take out the top 15-20% of managers, the average hourly earning growth showed a pronounced downward divergence to a lower growth rate. The BLS switched to this number including all employees a few years ago from the non-supervisory number. As a rule of thumb, when someone shows you the 'average' number, find out the median number for the same sample. Especially in these days of historically high inequality. ..."
Nov 07, 2016 | jessescrossroadscafe.blogspot.com

"The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from the rising to the setting of the sun is enough for them.

Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus


"He who makes a beast of himself gets rid of the pain of being a man."

Samuel Johnson

In our artificial economy real things do not matter so much, but politics and managing the perceptions of the public are of paramount importance. And so the 'Goldilocks' Jobs Report, which is how the business TV channels described that lukewarm piece of dreck, did little to rally the markets except fleetingly intraday.

In the first chart below I take a look inside that 'average hourly earnings growth' number.

The headline includes ALL employees, but if you take out the top 15-20% of managers, the average hourly earning growth showed a pronounced downward divergence to a lower growth rate. The BLS switched to this number including all employees a few years ago from the non-supervisory number. As a rule of thumb, when someone shows you the 'average' number, find out the median number for the same sample. Especially in these days of historically high inequality.

Be that as it may, the markets overall were in a flight to safety as the financiers bowed to their fears of the upcoming presidential election, that something might happen that will upset their status quo.

Not the status quo- theirs.

... ... ...

[Oct 19, 2016] October 19, 2016 at 12:17 PM

Oct 19, 2016 | economistsview.typepad.com

Anon : , 2016 at 12:17 PM

so when people criticize the big deflation in computer/electronics hardware using baseless measures like "if the computer has a processor twice as fast then it has fallen by half in price" they are wackos. but now the real growth that is artificially generated by this way (quality improvements) to keep inflation down is being criticized by Fox. Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is.
Ben Groves -> Anon... , October 19, 2016 at 01:10 PM
Oh please, when RFK was talking about the massive poverty in eastern kentucky in 1968, where was the huge increase in living standards?

Government data is flawed right now, to a extent in needs a total reworking. There is no artificial growth. Just lost growth by outdated models.

pgl -> Ben Groves... , October 19, 2016 at 02:19 PM
Do you have some weird need to spew nonsense completely unrelated to the post every time you comment? Geesh.
DrDick : , October 19, 2016 at 12:20 PM
Color me shocked by this revelation./s
anne : , October 19, 2016 at 12:28 PM
https://fred.stlouisfed.org/graph/?g=7yCj

January 15, 2016

Manufacturing Production Index, 1992-2016

(Indexed to 1992)


https://fred.stlouisfed.org/graph/?g=7OvR

January 15, 2016

Manufacturing Production and Manufacturing Durable Computer and Electronic Indexes, 1992-2016

(Indexed to 1992)

anne -> anne... , October 19, 2016 at 02:03 PM
Using separate axes for clarity:

https://fred.stlouisfed.org/graph/?g=7OBH

January 15, 2016

Manufacturing Production and Manufacturing Durable Computer and Electronic Indexes, 1992-2016

(Indexed to 1992)

anne -> anne... , October 19, 2016 at 02:40 PM
What is the share of manufacturing production of durable computer and electronic manufacturing? I do not know how to graph this.
anne -> anne... , October 19, 2016 at 03:32 PM
Getting closer:

https://fred.stlouisfed.org/graph/?g=7OFU

January 15, 2016

Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

(Indexed to 1992)

anne -> anne... , October 19, 2016 at 03:37 PM
https://fred.stlouisfed.org/graph/?g=7OG5

January 15, 2016

Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

8.8% in 1992
to 11.4% in 1999
to 5.2% in 2014
to 6.1% in 2016.

Ben Groves : , October 19, 2016 at 01:08 PM
Manufacturing hasn't boomed since the 60's. The FRED graphs are garbage and useless in general. They are improperly calculated and they have out right admitted they may have "problems".

Manufacturing is dying out and becoming automated over the decades. There is no such thing as artificial growth either. Demand based on consumption is just as valid as industrial production shipped to other countries.

pgl -> Ben Groves... , October 19, 2016 at 02:21 PM
"The FRED graphs are garbage and useless in general."

No - your comments are garbage and useless. Actually READ the post. He did not get his graphs or data from FRED. Seriously - you need professional help.

Ben Groves -> pgl... , October 19, 2016 at 02:48 PM
poppycock. the garbage on their industrial production chart in the 90's and 00's was stupid bad. The US hasn't had a industrial boom since the 60's when our consumption was surging while we still made most of our products. No wonder inflation surged by the late 60's. The war against communism was having a painful bad side effects to rentiers and bankers, which spread to capital by the late 60's.
pgl -> Ben Groves... , October 19, 2016 at 04:07 PM
"the garbage on their industrial production chart in the 90's and 00's was stupid bad."

Can we focus on the single word "their". You think he used FRED. No jackass, he made his own charts from the source data - BLS. But noooooooo - you are too stupid to get even this simple point. So the rest of your ramblings is nothing more than your usual intellectual garbage.

likbez : , October 19, 2016 at 02:02 PM
Quality adjustments = number racket
jonny bakho : , October 19, 2016 at 03:28 PM
Auto mfg dropped by half post 2008.
It is now back but has nowhere to grow.
Urbanization makes cars less necessary and less desirable
There is not enough room to park them all now.
People who earn MinWage cannot afford them
sanjait : , October 19, 2016 at 03:53 PM
Interesting point but many will overinterpret this. Leave in the expansion of computer and electronics manufacturing value add, and we have manufacturing output slightly expanding. Take it out entirely and we have manufacturing output basically steady.

The difference isn't telling an important macro story.

The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes.

The two big factors are the increased productivity of manufacturing globally and the declining share of manufactured products as a % of GDP globally. The smaller factor is the US's declining share of global manufacturing output, which itself is only fractionally attributable to trade policy.

This one graph tells most of the story:

http://1.bp.blogspot.com/-JEZXR9XK7vc/Tbr46ReInRI/AAAAAAAAPQ0/HlLXeVin_g0/s1600/worldmfg.jpg

I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change.

The only big question is how we adapt to the world as it actually is.

anne -> sanjait... , October 19, 2016 at 04:23 PM
Nicely done.

Also, I did not realize I was being presented with an argument about Chinese growth and sustainability. I foolishly stopped reading and I am entirely sorry. I have set down data and begun to answer the argument below on Links:

http://economistsview.typepad.com/economistsview/2016/10/links-for-10-19-16.html#comment-6a00d83451b33869e201bb09479d0e970d

October 19, 2016

anne -> sanjait... , October 19, 2016 at 04:26 PM
What is significant though is how China insists on holding to growth targets that are very likely not sustainable. Stability is a worthy aim but when growth is achieved through pushing bad private sector loans, that is ultimately the enemy of stability.

[ For these 39 past years China has been holding to and achieving growth targets that were repeatedly considered unsustainable so I prefer to figure out why Chinese growth targets have been and from my perspective are now sustainable. ]

the forgotten spirit of American protectionism : , -1
YES! Of course US manufacturing isn't booming - how could it? We have horrible economic policies that are focused almost entirely on destroying our industrial base. High overvalued currency, combined with 0% tariffs and we have no VAT, so foreign imports from countries with a VAT receive export subsidies but are not taxed on the US side. That we have even one factory left is amazing and testament to the quality of American workers. Under Clinton, we'll lose what's left. Trump is our only hope. If we don't get Trump's protectionism we will quickly become a country as poor as Armenia or Moldova - stripped of industry and wealth, dependent on remittances from our migrant workers in Asia and Europe.

[Oct 19, 2016] No, U.S. Manufacturing Isnt Really Booming

Notable quotes:
"... Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is. ..."
"... The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes. ..."
"... I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change. ..."
Oct 19, 2016 | economistsview.typepad.com
Justin Fox:

No, U.S. Manufacturing Isn't Really Booming :...[Is]American manufacturing .. in decline? An answer frequently offered by wonky economics journalists is that, no, U.S. manufacturing output has actually kept growing. ...

There's a catch, though. As economist Susan N. Houseman of the W.E. Upjohn Institute for Employment Research ... points out , about half of the growth in U.S. manufacturing output since 1997 has been in just one sector: computer and electronics manufacturing.

If it weren't for computers and electronics (which includes semiconductors), manufacturing output would still be well below its 2008 peak and only 21 percent higher than in 1997...

The ... way those computers-and-electronics numbers are arrived at is worthy of a closer look. ... Without adjusting for deflation, value added in computer and electronics manufacturing is up 45 percent since 1997. With the adjustments, it's up 699 percent! What's happening here is that the Bureau of Economic Analysis has been trying to account for vast improvements in ... quality... Writes Houseman:

Such quality adjustment ... can make the numbers difficult to interpret..., figures that exclude this industry ... arguably provide a clearer picture of trends in manufacturing output.

As it stands now, those trends don't look impressive. U.S. manufacturing output has held up a lot better than manufacturing employment. But it definitely isn't booming.

Anon : October 19, 2016 at 12:17 PM

so when people criticize the big deflation in computer/electronics hardware using baseless measures like "if the computer has a processor twice as fast then it has fallen by half in price" they are wackos. but now the real growth that is artificially generated by this way (quality improvements) to keep inflation down is being criticized by Fox.

Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is.

anne -> anne... , October 19, 2016 at 03:37 PM
https://fred.stlouisfed.org/graph/?g=7OG5

January 15, 2016

Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

8.8% in 1992
to 11.4% in 1999
to 5.2% in 2014
to 6.1% in 2016.

likbez : , October 19, 2016 at 02:02 PM
Quality adjustments = number racket
jonny bakho : , October 19, 2016 at 03:28 PM
Auto mfg dropped by half post 2008. It is now back but has nowhere to grow. Urbanization makes cars less necessary and less desirable
There is not enough room to park them all now. People who earn MinWage cannot afford them
sanjait : , October 19, 2016 at 03:53 PM
Interesting point but many will overinterpret this. Leave in the expansion of computer and electronics manufacturing value add, and we have manufacturing output slightly expanding. Take it out entirely and we have manufacturing output basically steady.

The difference isn't telling an important macro story.

The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes.

The two big factors are the increased productivity of manufacturing globally and the declining share of manufactured products as a % of GDP globally. The smaller factor is the US's declining share of global manufacturing output, which itself is only fractionally attributable to trade policy.

This one graph tells most of the story:

http://1.bp.blogspot.com/-JEZXR9XK7vc/Tbr46ReInRI/AAAAAAAAPQ0/HlLXeVin_g0/s1600/worldmfg.jpg

I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change.

The only big question is how we adapt to the world as it actually is.

anne -> sanjait... , October 19, 2016 at 04:23 PM
Nicely done.

Also, I did not realize I was being presented with an argument about Chinese growth and sustainability. I foolishly stopped reading and I am entirely sorry. I have set down data and begun to answer the argument below on Links:

http://economistsview.typepad.com/economistsview/2016/10/links-for-10-19-16.html#comment-6a00d83451b33869e201bb09479d0e970d

October 19, 2016

anne -> sanjait... , October 19, 2016 at 04:26 PM
What is significant though is how China insists on holding to growth targets that are very likely not sustainable. Stability is a worthy aim but when growth is achieved through pushing bad private sector loans, that is ultimately the enemy of stability.

[ For these 39 past years China has been holding to and achieving growth targets that were repeatedly considered unsustainable so I prefer to figure out why Chinese growth targets have been and from my perspective are now sustainable. ]

the forgotten spirit of American protectionism : , -1
YES! Of course US manufacturing isn't booming - how could it? We have horrible economic policies that are focused almost entirely on destroying our industrial base. High overvalued currency, combined with 0% tariffs and we have no VAT, so foreign imports from countries with a VAT receive export subsidies but are not taxed on the US side. That we have even one factory left is amazing and testament to the quality of American workers. Under Clinton, we'll lose what's left. Trump is our only hope. If we don't get Trump's protectionism we will quickly become a country as poor as Armenia or Moldova - stripped of industry and wealth, dependent on remittances from our migrant workers in Asia and Europe.

[Oct 19, 2016] Why distrust data

Notable quotes:
"... **Opinions here are mine and should not to be attributed to anyone with whom I work.** ..."
Oct 19, 2016 | claudiasahm.postagon.com
48% of Trump supporters "completely distrust the economic data reported by the federal government" including unemployment, spending, jobs. https://t.co/5l9GhucBFI
- Justin Wolfers (@JustinWolfers) October 15, 2016

That tweet and the linked article got my attention (no trust of data by 25% of adults!) ... Still why reflect on this? ... so much else to get stuck on these days. First, I use official statistics in my work A LOT; second, I am always on the look out for new survey insights; and finally, I am a bit obsessed lately with models in which people are not acting on the same information. This level of distrust is troubling ... even though I doubt it's new or entirely about the data ... I want us to think about WHY.

I study consumer behavior as an economist, which in 2016 still means reading lots of research with dynamic optimization and Euler equations. This is a typical early morning ritual for me, that quiet time before my kids wake up when I can still imagine a world in which we know everything about everything, including ourselves, and we choose calmly and appropriately. BUT I balance out my openness to such models with a determination to also understand what people ACTUALLY do and think.

Nevertheless, I am picky about the survey insights that I absorb, pass on, and try to understand. My cognate in grad school was survey methodology and I still write survey questions in my research ... thus I understand how much responses can be manipulated, or even carelessly biased by poor methods and human nature. Also I want to know what people think, not what someone writing up the survey results wants me as a reader to think. (I'm not a fan of the tweet, by the way.) So I googled and found the survey's homepage , a Marketplace-Edison Research poll designed to measure economic anxiety. And, I found a description of the methods AND the full survey too (see page 30 for this question). It's not the micro data online, so I can't replicate the statistic in the tweet, but I could see that the "data trust" question was asked before voting intentions or political affiliation. I have learned from pollsters that asking about politics conjures up an identity that can be hard to shake in the rest of the survey. The main roadblock I see in interpreting the data distrust is this survey's short time series; it only began last fall as a quarterly survey. My hunch is that distrust of economic data is nothing new but I can't prove that here. Plus changes in attitudes are often more informative than a snapshot, since subjective questions are tricky to interpret. What does it mean to "trust data" anyway? Do you trust data?

To be clear, I am not justifying anyone's views, but I am also trying not to be judgmental. A key principle of surveying is not to make people feel bad or shameful about their views. Because, guess what, if you do, they are less likely to tell you what they think or did ... then you are fighting blind and may miss the chance to learn why we sometimes see the world differently. I am not in the 25% of adults who have "no trust at all" in economic statistics from the government. In fact, I am in a rare set of adults who spends more time on the Bureau of Economic Analysis ' website sorting through spending data than on Amazon adding to it. So what's up with all this distrust? I have a few hypotheses to take to the data.

Hypothesis 1: government economic data don't match people's life

Sometimes I think the Representative Agent is a frenemy of economists. (Oh, not the Twitter persona , he's great, but the concept.) How can a simplifying assumption ... a focus on the typical or aggregate household ... be an enemy in disguise? Well, sometimes it gives theoretical models the focus they need and other times, especially in empirical work, it glosses over important details. Details, also known as people . So maybe distrust of economic data comes from not seeing your life experience in the numbers that roll across the screen. National aggregates get a lot of attention, so maybe it is minorities that end of distrusting data more, data that doesn't tell their story as loudly.

Not so, at least in terms of data about the economy, minorities are more trusting than whites. Only 15 percent of African-American have no trust at all in economic data almost half the fraction of whites. And among Hispanics, only12 percent have complete distrust of data. With whites comprising over 70 percent of all adults, they are well represented in both aggregate statistics and the distrust of them. Of course, this is just one cut of the data and not seeing your life experience in the data may raise other issues (more below). Government agencies have made a push to improve regional statistics and even make neighborhood data more readily accessible and help improve local decision making. And of course, lots of household level surveys exist too. Another reason to take distrust (or even disinterest) in government economic data seriously is that the quality of the data we have depends on people's participation in our surveys. Response rates on numerous surveys have been falling and research suggests that non response could impact official statistics, making them a less accurate reflection of life experiences.

Hypothesis 2: distrust stems from people being "hurt" by data

One the first Friday of the every month, my Twitter feed is overflowing with chatter about the latest employment report from the Bureau of Labor Statistics . That makes me weird. I firmly believe that few people absorb the government statistics in the way that I and my fellow econos do. Why should they? People confront economic data when it affects them. One example I can think of is the cost-of-living adjustment, such as for Social Security benefits. That came to mind when I looked at data distrust by age.

no cost-of-living adjustment to benefits had led some seniors to "distrust" government data, like the CPI-W? Again, this hypothesis would be a lot better to test with a time series of data, comparing years with benefit increases and without. But feeling shortchanged by the data may be understandable given wide variation relative price changes , few of us exactly consume the representative basket. Alternatively, as risk aversion appears to rise with age, maybe so too does distrust? I wrote earlier that age is more than just a number , the impact of demographic change deserves more study.

Hypothesis 3: it's not the data, it is the way we use them ... the spin

I don't trust data, I trust people. And even then, trust but verify, right? Perfectly measured data (dream, dream), can be still be suspect. In fact, data can codify a lot of the biases and mistakes we have made together in the past. Maybe we should also be concerned for the people who "completely trust" government economic data? (Do read Cathy O'Neil's book on Big Data and algorithms.) Yet, I suspect the distrust in the survey is not about data construction (I've never seen a protest at the ever-interesting BEA advisory committee meetings ) ... or even about the government employees who construct the statistics in excruciating detail, and in line with international standards . I bet the distrust is more about how the numbers are interpreted and how they are used in policy making. Drawing conclusions from data is hard and reasonable disagreement is to be expected. As just one example, the seasonally-adjusted unemployment rate for African Americans was 8.3 in September , which is below its average of 10.8 percent over the past 20 years but is almost double the 4.4 percent unemployment rate of whites. Should we call that 8.3 (or 4.4, for that matter) victory or 'full employment'? And is the unemployment rate even the right statistic to assess? Relative to the past it may well be but the past can be an imperfect guide for the future. Every data point has its shortcoming, especially where there is no clear counterfactual or agreed upon target. My "moderate" growth could easily be your "weaker-than-expected" growth. And, of course, on top of honest disagreements about data, plenty of motivated reasoning is done with numbers. BUT when we start with the same data, there are at least some bounds on the disagreement. In contrast, when government data are wholesale rejected one quarter of adults, it's no surprise that we aren't living in the same world. And we stop trying to understand each other. I would be lost (and bored out of my mind) in my work on consumer behavior without data. You don't want me extrapolating from my tiny circle of experience ... and frankly no one should make decisions with that little information. We can learn a lot from the data, including these attitudinal surveys. And data adds accountability, including in how its collected. Even so, no one likes to feel manipulated or, worse, written off, especially with numbers.

Data can't solve problems but maybe it holds clues to a path forward ... to rebuild trust.

**Opinions here are mine and should not to be attributed to anyone with whom I work.**

Is it just not done to ask people why they distrust Government figures ?
2016-10-17, Stuart Gibson The same thing happened here in Italy with Silvio Berlusconi. He got a lot of reforms but a lot of people ignored facts.
2016-10-17, pietro No one 'trusts' data. We all have confidence intervals.
This combined with your point number 3 is the main issue I suspect.
Point number 1 is also in play, I think point 2 is essentially irrelevant, it might be true for some data, but not for data.
As far as economics goes, people intuitively understand that economics attempts to push the envelope and use data to draw conclusions that are not really addressable with the data. Economists don't even have agreement on how data is used - thinking mostly of macro. I see no reason to puzzle on this until you can get economists to all agree. I don't mean this as a challenge, just a description of the situation.
2016-10-17, Dan The headline unemployment number is obviously false, and this affects confidence in the other numbers.
There is no particular mystery about what is going on.
2016-10-17, Dave Chapman Because your aggregated statistics does not reflect the experience of the individuals:
"But several underlying factors also appear to have contributed to the closeness of the race. For starters, many Americans are economically worse off than they were a quarter-century ago. The median income of full-time male employees is lower than it was 42 years ago, and it is increasingly difficult for those with limited education to get a full-time job that pays decent wages.
Indeed, real (inflation-adjusted) wages at the bottom of the income distribution are roughly where they were 60 years ago. So it is no surprise that Trump finds a large, receptive audience when he says the state of the economy is rotten. But Trump is wrong both about the diagnosis and the prescription. The US economy as a whole has done well for the last six decades: GDP has increased nearly six-fold. But the fruits of that growth have gone to a relatively few at the top – people like Trump, owing partly to massive tax cuts that he would extend and deepen. "
https://www.project-syndicate.org/commentary/trump-candidacy-message-to-political-leaders-by-joseph-e--stiglitz-2016-10
2016-10-17, PSteele

[Oct 12, 2016] Interesting read on the history of the Nobel Prize in Economics and its ideological tendency

Notable quotes:
"... In the West, the priority accorded to the individualist self-regarding norms underlying the Washington Consensus created a nurturing environment for growth in corruption, inequality, and mistrust in governing elites – the unintended consequences of rational-choice, me-first premises. With the emergence in advanced economies of disorders previously associated with developing countries, Swedish political scientist Bo Rothstein has petitioned the Academy of Sciences (of which he is a member) to suspend the Nobel Prize in economics until such consequences are investigated." ..."
Oct 11, 2016 | economistsview.typepad.com

JohnH : October 11, 2016 at 06:58 AM

Interesting read on the history of the Nobel Prize in Economics and its ideological tendency:

Avner Offer: "a group of center-right economists captured the process of selecting prizewinners...The prize kingmaker was Stockholm University economist Assar Lindbeck, who had turned away from social democracy. During the 1970s and 1980s, Lindbeck intervened in Swedish elections, invoked microeconomic theory against social democracy, and warned that high taxation and full employment led to disaster. His interventions diverted attention from the grave policy error being made at the time: deregulation of credit, which led to a deep financial crisis in the 1990s and anticipated the global crisis that erupted in 2008.

Lindbeck's concerns were similar to those of the International Monetary Fund, the World Bank, and the US Treasury. These actors' insistence on privatization, deregulation, and liberalization of capital markets and trade – the so-called Washington Consensus – enriched business and financial elites, led to acute crises, and undermined emerging economies' growth.

In the West, the priority accorded to the individualist self-regarding norms underlying the Washington Consensus created a nurturing environment for growth in corruption, inequality, and mistrust in governing elites – the unintended consequences of rational-choice, me-first premises. With the emergence in advanced economies of disorders previously associated with developing countries, Swedish political scientist Bo Rothstein has petitioned the Academy of Sciences (of which he is a member) to suspend the Nobel Prize in economics until such consequences are investigated."

https://www.project-syndicate.org/commentary/economics-nobel-versus-social-democracy-by-avner-offer-2016-10

[Sep 14, 2016] Yes, Donald Trump is wrong about unemployment. But he's not the only one

Spirited defense of the establishment from one of financial oligarchy members. " The economy overall is doing just fine." Does this include QE? If the Fed is pouring billions of new money into the economy, how accurate is it to say that the economy is doing just fine?
Notable quotes:
"... "That was a number that was devised, statistically devised, to make politicians - and in particular, presidents - look good. And I wouldn't be getting the kind of massive crowds that I'm getting if the number was a real number." ..."
"... In the 1950s and 1960s, for instance, organized labor was fairly convinced that the government was purposely underestimating inflation and the cost of living to keep Social Security payments low and wages from rising. George Meany, the powerful head of the American Federation of Labor at the time, claimed that the Bureau of Labor Statistics, which compiled both employment and inflation numbers, had "become identified with an effort to freeze wages and is not longer a free agency of statistical research." ..."
"... Employment figures are sometimes seen as equally suspect. Jack Welch, the once-legendary former CEO of GE, blithely accused the Obama administration of manipulating the final employment report before the 2012 election to make the economic recovery look better than it was. "Unbelievable jobs numbers … these Chicago guys will do anything … can't debate so change numbers," he tweeted ..."
"... His arguments were later fleshed out by New York Post columnist John Crudele , who went on to charge the Census Bureau (which works with BLS to create the samples for the unemployment rate) with faking and fabricating the numbers to help Obama win reelection. ..."
"... The chairman of the Gallup organization, Jim Clifton, sees so many flaws with the way unemployment is measured that he has called the official rate a "Big Lie." In the Democratic presidential campaign, Bernie Sanders has also weighed in, saying the real unemployment rate is at best above 10 percent. ..."
"... What a useless article. The author explains precisely nothing about what the official statistics do and do not measure, what they miss and what they capture. ..."
"... I had the same impression as well. Notice he does not mention that the Gallop number is over 10% and is based on their polling data. ..."
"... But never mentioned that Reagan changed how Unemployment was figured in the early 80's. He included all people in the military service, as employed. Before that, they was counted neither way. He also intentionally left out that when Obama, had the unemployed numbers dropped one month before the election, from 8.1% to 7.8% --because it was believed that no one could be reelected if it was above 8%. ..."
"... U6 is 9.8% for March 2016. We still have 94 million unemployed and you want to say its 5 % what journalistic malpractice. ..."
"... Trump has emphasized that he is looking at the percent of the population that is participating in the workforce - and that this participation rate is currently at historical lows -- and Trump has been clear that his approach to paying down the national debt is based on getting the participation rates back to historical levels ..."
"... "The government can't lie about a hundred billion dollars of Social Security money stolen for the Clinton 'balanced budget', that would be a crime against the citizens, they would revolt. John, come one now. " ..."
"... I didn't say it first, Senator Ernest Hollings did, on the Senate floor. ..."
"... And here is how they did it: http://www.craigsteiner.us/articles/16 ..."
"... There is plenty of evidence the figures are cooked, folks, enough to fill a book: Atlas Shouts. Don't believe trash like this article claims. GDP, unemployment and inflation are all manipulated numbers, as Campbell's Law predicts. ..."
"... I can't believe the Washington Post prints propaganda like this. ..."
"... I do remember when the officially-announced unemployment rate stopped including those who were no longer looking for work. That *was* a significant shift, and there's no doubt it made politicians (Reagan, I think it was) look better; of course, no President since then has reversed it, as it would instantly make themselves look worse. ..."
"... Working one hour a week, at minimum wage, is 'employed', according to the government. No wonder unemployment is at 5%. ..."
"... Add in people who are working, but want and need full time jobs, add in people who have dropped out of the labor market and/or retired earlier than they wanted to, and unemployment is at least 10%. Ten seconds on Google will show you that. ..."
"... The writer should be sacked for taking a very serious issue and turning it into a piece of non-informative fluff. Bad mouthing Trump and Sanders is the same as endorsing Hilly. ..."
Apr 08, 2016 | The Washington Post
Yes, Donald Trump is wrong about unemployment. But he's not the only one. - The Washington Post

Listen to President Obama, and you'll hear that job growth is stronger than at any point in the past 20 years, and - as he said in his final State of the Union address - "anyone claiming that America's economy is in decline is peddling fiction."

Listen to Donald Trump and you'll hear something completely different. The billionaire Republican candidate for president told The Washington Post last week that the economy is one big Federal Reserve bubble waiting to burst, and that as for job growth, "we're not at 5 percent unemployment. We're at a number that's probably into the 20s if you look at the real number." Not only that, Trump said, but the numbers are juiced: "That was a number that was devised, statistically devised, to make politicians - and in particular, presidents - look good. And I wouldn't be getting the kind of massive crowds that I'm getting if the number was a real number."

It's easy enough to dismiss - as a phalanx of economists and analysts did - Trump's claims as yet another one of his all-too-frequent campaign lines that have little to do with reality. But with this one, at least, Trump is tapping into a deep and mostly overlooked well of popular suspicion of government numbers and a deeply held belief that what "we the people" are told about the economy by the government is lies, damn lies and statistics designed to benefit the elite at the expense of the working class. The stubborn persistence of these beliefs should be a reminder that just because the United States is doing well in general, that doesn't mean everyone in the country is. It's also a warning to experts and policymakers that in the real world, there is no "the economy," there are many, and generalizations have a way of glossing over some very rough patches.

Since the mid-20th century, when the U.S. government began keeping and compiling our modern suite of economic numbers, there has been constant skepticism of the reports, coming from different corners depending on economic trends and the broader political climate. In the 1950s and 1960s, for instance, organized labor was fairly convinced that the government was purposely underestimating inflation and the cost of living to keep Social Security payments low and wages from rising. George Meany, the powerful head of the American Federation of Labor at the time, claimed that the Bureau of Labor Statistics, which compiled both employment and inflation numbers, had "become identified with an effort to freeze wages and is not longer a free agency of statistical research."

Over the decades, those views hardened. Throughout the 1970s, as workers struggled with unemployment and stagflation, the government continually tweaked its formulas for measuring prices. By and large, these changes and new formulas were designed to make the figures more accurate in a fast-changing world. But for those who were already convinced the government was trying to paint a deliberately false picture, the tweaks and innovations were interpreted as a devious way to avoid spending money to help the ailing middle class, not trying to measure what was actually happening to design policies to help address it. The commissioner of BLS at the time, Janet Norwood, dismissed those concerns in testimony to Congress in the late 1970s, saying that when people don't get the number they want, "they feel there must be something wrong with the indicator itself."

Employment figures are sometimes seen as equally suspect. Jack Welch, the once-legendary former CEO of GE, blithely accused the Obama administration of manipulating the final employment report before the 2012 election to make the economic recovery look better than it was. "Unbelievable jobs numbers … these Chicago guys will do anything … can't debate so change numbers," he tweeted after that last October report showed better-than-expected job growth and lower-than-anticipated unemployment rate. His arguments were later fleshed out by New York Post columnist John Crudele, who went on to charge the Census Bureau (which works with BLS to create the samples for the unemployment rate) with faking and fabricating the numbers to help Obama win reelection.

These views are not fringe. Type the search terms "inflation is false" into Google, and you will get reams of articles and analysis from mainstream outlets and voices, including investment guru Bill Gross (who referred to inflation numbers as a "haute con job"). Similar results pop up with the terms "real unemployment rate," and given how many ways there are to count employment, there are legitimate issues with the headline number.

[The bizarre optimism in Donald Trump's theory of the economy]

The cohort that responds to Trump reads those numbers in a starkly different light from the cohort laughing at him for it. Whenever the unemployment rate comes out showing improvement and hiring, those who are experiencing dwindling wages and shrinking opportunities might see a meticulously constructed web of lies meant to paint a positive picture so that the plight of tens of millions who have dropped out of the workforce can be ignored. The chairman of the Gallup organization, Jim Clifton, sees so many flaws with the way unemployment is measured that he has called the official rate a "Big Lie." In the Democratic presidential campaign, Bernie Sanders has also weighed in, saying the real unemployment rate is at best above 10 percent.

Beneath the anger and the distrust - which extend to a booming stock market that helps the wealthy and banks flush with profit even after the financial crisis - there lies a very real problem with how economists, the media and policymakers discuss economics. No, the bureaucrats in the Labor and Commerce departments who compile these numbers aren't a cabal engaged in a cover-up. And no, the Fed is not an Illuminati conspiracy. But the idea that a few simple big numbers that are at best averages to describe a large system we call "the economy" can adequately capture the stories of 320 million people is a fiction, one that we tell ourselves regularly, and which millions of people know to be false to their own experience.

It may be true that there is a national unemployment rate measured at 5 percent. But it is also true that for white men without a college degree, or white men who had worked factory jobs until the mid-2000s with no more than a high school education, the unemployment reality is much worse (though it's even worse for black and Hispanic men, who don't seem to be responding by flocking to Trump in large numbers). Even when those with these skill sets can get a job, the pay is woefully below a living wage. Jobs that don't pay well still count, in the stats, as jobs. Telling people who are barely getting by that the economy is just fine must appear much more than insensitive. It is insulting, and it feels like a denial of what they are experiencing.

The chords Trump strikes when he makes these claims, therefore, should be taken more seriously than the claims themselves. We need to be much more diligent in understanding what our national numbers do and do not tell us, and how much they obscure. In trying to hang our sense of what's what on a few big numbers, we risk glossing over the tens of millions whose lives don't fit those numbers and don't fit the story. "The economy" may be doing just fine, but that doesn't mean that everyone is. Inflation might be low, but millions can be struggling to meet basic costs just the same.

So yes, Trump is wrong, and he's the culmination of decades of paranoia and distrust of government reports. The economy overall is doing just fine. But people are still struggling. We don't have to share the paranoia or buy into the conspiratorial narrative to acknowledge that. A great nation, the one Trump promises to restore, can embrace more than one story, and can afford to speak to those left out of our rosy national numbers along with those whose experience reflect them.

the3sattlers, 4/8/2016 1:05 PM EDT

" The economy overall is doing just fine." Does this include QE? If the Fed is pouring billions of new money into the economy, how accurate is it to say that the economy is doing just fine?

james_harrigan, 4/8/2016 10:14 AM EDT

What a useless article. The author explains precisely nothing about what the official statistics do and do not measure, what they miss and what they capture.

Derbigdog, 4/8/2016 11:40 AM EDT

I had the same impression as well. Notice he does not mention that the Gallop number is over 10% and is based on their polling data.

captdon1, 4/8/2016 5:51 AM EDT

Not reported by WP
The first two years of Obama's presidency Democrats controlled the house and Senate. The second two years, Republicans controlled the Senate. The last two years of Obama's term, the Republicans controlled house and Senate. During this six years the national debt increase $10 TRILLION and the Government collected $9 TRILLION in taxes and borrowed $10 TRILLION. ($19 Trillion In Six Years!!!) (Where did our lovely politicians spend this enormous amount of money??? (Republicans and Democrats!)

reussere, 4/8/2016 1:43 AM EDT

Reading the comments below it strikes me again and again how far out of whack most people are with reality. It's absolutely true that using a single number for the employment rate reflects the overall average of the economy certainly doesn't measure how every person is doing, anymore than an average global temperature doesn't measure any local temperatures.

One thing not emphasized in the article is that there is a number of different statistics. The 5% figure refers to the U-3 statistic. Nearly all of the rest of the employment statistics are higher, some considerably so because they include different groups of people. But when you compare U-3 from different years, you are comparing apples and apples. The rest of the numbers very closely track with U-3. That is when U-3 goes up and down, U-6 go up and down pretty much in lockstep.

It is unfortunate that subpopulations of Americans are doing far worse (and some doing far better) than average. But that is the nature of averages after all. It is simply impossible for a single number (or even a group of a dozen different employment measurements) to accurately reflect a complex reality.

Smoothcountryside, 4/8/2016 12:04 PM EDT

The alternative measures of labor underutilization are defined as U-1 through U-6 with U-6 being the broadest measure and probably the closes to the "true" level of unemployment. Otherwise, all the rest of your commentary is correct.

southernbaked, 4/7/2016 11:02 PM EDT

Because this highly educated writer is totally bias, he left out some key parts, I personally lived though. He referred back to the late 70's twice. But never mentioned that Reagan changed how Unemployment was figured in the early 80's. He included all people in the military service, as employed. Before that, they was counted neither way. He also intentionally left out that when Obama, had the unemployed numbers dropped one month before the election, from 8.1% to 7.8% --because it was believed that no one could be reelected if it was above 8%.

Then after he was sworn in--- in January, they had to readjust the numbers back up. They blamed it on one employees mistakes-- PS. no one was fired or disciplined for fudging. Bottom line is, for every 1.8 manufacturing job, there are 2 government jobs, that is disaster. Because this writer is to young to have lived in America when it was great. When for every 1 government job, you had 3 manufacturing jobs.

I will enlighten him. I joined the workforce -- With no higher education -- when you merely walked down the road, and picked out a job. Because jobs hang on trees like apples. By 35 I COMPLETELY owned my first 3 bedroom brick house, and the 2 newer cars parked in the driveway. Anyone care to try that now ??

As for all this talk about education-- I have a bit of knowledge about that subject-- because I paid in full to send all under my roof through it. Without one dime of aide from anyone. The above writer is proof-- you can be heavily educated, and DEAD WRONG. There is nothing good about this economy. Signed, UN-affiliated to either corrupted party

Bluhorizons, 4/7/2016 9:43 PM EDT

"we're not at 5 percent unemployment. We're at a number that's probably into the 20s if you look at the real number." Trump is correct. The unemployment data is contrived from data about people receiving unemployment compensation but the people who's unemployment has ended and people who have just given up is invisible.

"It may be true that there is a national unemployment rate measured at 5 percent. But it is also true that for white men without a college degree, or white men who had worked factory jobs until the mid-2000s with no more than a high school education, the unemployment reality is much worse "

The author goes on and on about the legitimate distrust of government unemployment data and then tells us Trump is wrong. But the article convinces us Trump is right! So, this article its not really about the legitimate distrust of government data is is about the author's not liking Trump. Typical New Left bs

Aushax, 4/7/2016 8:24 PM EDT

Last jobs report before the 2012 election the number unusually dropped then was readjusted up after the election. Coincidentally?

George Mason, 4/7/2016 8:15 PM EDT

U6 is 9.8% for March 2016. We still have 94 million unemployed and you want to say its 5 % what journalistic malpractice.

F mackey, 4/7/2016 7:57 PM EDT

hey reporter,Todays WSJ, More than 40% of the student borrowers aren't making payments? WHY? easy,they owe big $ money$ & cant get a job or a well paying job to pay back the loans,hey reporter,i'd send you $10 bucks to buy a clue,but you'd probably get lost going to the store,what a %@%@%@,another reporter,who doesn't have a clue on whats going on,jmo

SimpleCountryActuary, 4/7/2016 7:57 PM EDT

This reporter is a Hillary tool. Even the Los Angeles Times on March 6th had to admit:

"Trump is partly right in saying that trade has cost the U.S. economy jobs and held down wages. He may also be correct - to a degree - in saying that low-skilled immigrants have depressed salaries for certain jobs or industries..."

If this is the quality of reporting the WaPo is going to provide, namely even worse than the Los Angeles Times, then Bezos had better fire the editorial staff and buy a new one.

Clyde4, 4/7/2016 7:34 PM EDT [Edited]

This article dismissing Trump is exactly what is wrong with journalism today - all about creating a false reality for people instead of investigating and reporting

Trump has emphasized that he is looking at the percent of the population that is participating in the workforce - and that this participation rate is currently at historical lows -- and Trump has been clear that his approach to paying down the national debt is based on getting the participation rates back to historical levels

The author completely ignored the big elephant in the room -- that is irresponsible journalism

The author may want to look into how the unemployment rate shot up in 2008 when the government extended benefits and then the unemployment rate plummeted again when unemployment benefits were decrease (around 2011, I believe) - if I were the author I would do a little research into whether the unemployment rate correlates with how much is paid out in benefits or with unemployment determined through some other approach (like surveys

dangerbird1225, 4/7/2016 7:25 PM EDT

Bunch of crap. If you stop counting those that stop looking for a job, your numbers are wrong. Period. Why didn't this apologist for statistics mention that?

watchkeptoverthewatcher, 4/7/2016 6:27 PM EDT

Ya with a labor participation rate of 63%

http://data.bls.gov/timeseries/LNS11300000

AtlasRocked, 4/7/2016 5:12 PM EDT

"The government can't lie about a hundred billion dollars of Social Security money stolen for the Clinton 'balanced budget', that would be a crime against the citizens, they would revolt. John, come one now. "

I didn't say it first, Senator Ernest Hollings did, on the Senate floor.

"Both Democrats and Republicans are all running this year and next and saying surplus, surplus. Look what we have done. It is false. The actual figures show that from the beginning of the fiscal year until now we had to borrow $127,800,000,000." - Senate speech, Democratic Senator Ernest Hollings, October 28, 1999

http://www.c-span.org/video/?c3319676 at 5:30

And here is how they did it: http://www.craigsteiner.us/articles/16

rgengel, 4/7/2016 5:03 PM EDT

Go to New Orleans Chicago Atlanta Los Angeles Detroit stop anybody on the street and ask if unemployment is 5% and that there is a 95% chance a guy can get a job.

Then you will have a statistic reference point. Its not a Democratic or republican issue because both of them have manipulated the system for so long its meaningless. Go Trump 2016 and get this crap sorted out with common sense plain English

AtlasRocked, 4/7/2016 4:37 PM EDT

There is plenty of evidence the figures are cooked, folks, enough to fill a book: Atlas Shouts. Don't believe trash like this article claims. GDP, unemployment and inflation are all manipulated numbers, as Campbell's Law predicts.

I can't believe the Washington Post prints propaganda like this.

TimberDave, 4/7/2016 2:23 PM EDT

I do remember when the officially-announced unemployment rate stopped including those who were no longer looking for work. That *was* a significant shift, and there's no doubt it made politicians (Reagan, I think it was) look better; of course, no President since then has reversed it, as it would instantly make themselves look worse.

astroboy_2000, 4/7/2016 1:28 PM EDT

This would be a much more intelligent article if the writer actually said what the government considers as 'employed'.

Working one hour a week, at minimum wage, is 'employed', according to the government. No wonder unemployment is at 5%.

Add in people who are working, but want and need full time jobs, add in people who have dropped out of the labor market and/or retired earlier than they wanted to, and unemployment is at least 10%. Ten seconds on Google will show you that.

The writer should be sacked for taking a very serious issue and turning it into a piece of non-informative fluff. Bad mouthing Trump and Sanders is the same as endorsing Hilly.

Manchester0913, 4/7/2016 2:12 PM EDT

The number you're referencing is captured under U6. However, U3 is the traditional measure.

Son House, 4/7/2016 2:24 PM EDT

The government doesn't claim that working one hour a week is employed. Google U 3 unemployment. Then google U 6 unemployment. You can be enlightened.

Liz in AL, 4/7/2016 7:21 PM EDT

I've found this compilation of all 6 of the "U-rates" very useful. It encompasses the most restrictive (and thus smallest) U-1 rate, though the most expansive U-6. It provides brief descriptions of what gets counted for each rate, and (at least for more recent years) provides the ability to compare at the monthly level of detail. U6 Unemployment Rate Portal Seven

[Mar 16, 2016] GDP never measures economic efficiency of the country

Notable quotes:
"... Energy intensity of the World economy has decreased from 1970 to 2014. This is probably due to deindustrialization of the Western countries. Aka "growth of service economy." ..."
peakoilbarrel.com

Dennis Coyne , 03/15/2016 at 6:56 pm

Energy intensity of the World economy has decreased from 1970 to 2014. Energy intensity is energy consumed by the economy divided by the real GDP produced.
In 1970 314 tonnes of oil equivalent(toe) were needed for each million 2005$ of GDP produced and by 2014 energy intensity had fallen to 225 toe per million 2005$ of GDP.

SRSrocco , 03/15/2016 at 9:46 pm
Dennis,

While you produce some fine charts, I hope you don't believe GDP and energy consumption will continue higher indefinitely. Also I hope you realize GDP figures are overstated due to understated inflation rates.

For example the policy of substitution says if top sirloin beef is too expensive, then we switch to eating ground chuck. If chuck becomes too high, then its plain ole ground beef. Once ground beef becomes too costly, then we switch to ground rat.

Lastly, why don't you add the debt into your equations and see what the trend lines look like.

Steve

Dennis Coyne , 03/16/2016 at 8:16 am
Hi Steve,

No inflation is not understated, the Shadowstats stuff is not believable. If you believe the Shadowstats CPI adjustment and us those numbers to find the real oil price from 1970 to 2012 and do the same using the BLS CPI we get the following chart. Does the Shadowstats estimate for the real oil price in 1980 look reasonable?

You cannot be serious. :-)

likbez , 03/16/2016 at 12:01 am
Dennis,

Energy intensity of the World economy has decreased from 1970 to 2014. This is probably due to deindustrialization of the Western countries. Aka "growth of service economy."

Ulenspiegel , 03/16/2016 at 2:26 am
"This is probably due to deindustrialization of the Western countries. Aka "growth of service economy.""

The GLOBAL industrial production did not decrease, therefore, your argument does not make sense. It is only useful in a national e.g. US-centric discussion.

Or if you actually check data for developed countries with quite different share of industry to their GDP you do not see the correlation of low share of industry = low energy intensity!

Dennis Coyne , 03/16/2016 at 8:20 am
Hi likbez,

As Ulenspiegel says correctly, for the World your point does not apply. The World Energy intensity has fallen as I have used Global GDP and Global energy consumption.

As long as we don't do a lot of interplanetary trade, this estimate will be close enough. :-)

likbez , 03/16/2016 at 7:21 pm
Ulenspiegel ,

GDP does not reflect only production (compare with GNI). It is completely different metric which takes into account the "value" produced by financial services, prostitution (yes in some countries income from prostitution is included into GDP; GB (3-4% or ~£10 billion) and Italy (2% of national GDP) are two examples: https://www.rt.com/news/161140-italy-drugs-prostitution-economy/ ) and like.

GDP is defined as the total value of final goods and services produced within a territory during a specified period (or, if not specified, annually, so that "the UK GDP" is the UK's annual product). GDP differs from gross national product (GNP) in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.

So the country with zero production in which people just wash dirty linen for each for remuneration or trade on stock market has a positive GDP. Other classic example: if somebody marries his secretary and she stays home to look after children GDP drops.

GDP never measures economic efficiency of the country; it measures the level of economic activity. Healthcare is a classic example. The USA spends 20% to subsidize maladaptive behavior between producers and consumers in the medical food chain. Another example is sales of high sugar context flavored water called Coca Cola and Pepsi Cola. It is negatively affect children health leading to obesity and early diabetes, but it is positively reflected in GDP. And then medical expenses for treating diabetes further increase GDP. That brings us to the problem of conspicuous consumption or consumption for the sake of status. Which in the USA is a real national epidemics (Keeping up with Jones). Many other components of GDP (especially FIRE - finance, insurance and real estate) are partially anti-social and their fast growth is a sign of the problems inherent in neoliberal societies rather then social progress of the particular country. This is especially true for the USA, which in this sense is the most wicked (aka neoliberal) country in the world.

This voodoo cult of GDP that dominates US economic discourse since 1991 is just a sign of the level of degradation of economic science under neoliberalism.

See http://www.bloomberg.com/news/articles/2014-05-23/counting-drugs-and-prostitution-in-gdp-makes-a-mockery-of-budget-rules

[Dec 17, 2015] GDP Forecasts Have Consistently Been Too High

cepr.net

December 17, 2015

GDP Forecasts Have Consistently Been Too High

In an article * on the Federal Reserve Board's decision to raise interest rates, the Washington Post referred to the 2.4 percent median growth forecast of the Fed's Open Market Committee. For example, last December their median forecast for growth in 2015 was 2.8 percent. It now appears growth will be around 2.2 percent for the year. The Fed was not out of line with other forecasts. For example the Congressional Budget Office, which quite explicitly tries to be near the middle of major forecasts, forecast 2.9 percent growth for 2015.

* https://www.washingtonpost.com/news/wonk/wp/2015/12/16/federal-reserve-launches-campaign-to-raise-interest-rates-and-return-u-s-economy-to-normal/

-- Dean Baker

[Dec 08, 2015] GDP often is not a good measure of a society's wellbeing

Notable quotes:
"... The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society. ..."
Project Syndicate

When Inequality Kills by Joseph E. Stiglitz - Project Syndicate

The basic perquisites of a middle-class life were increasingly beyond the reach of a growing share of Americans. The Great Recession had shown their vulnerability. Those who had invested in the stock market saw much of their wealth wiped out; those who had put their money in safe government bonds saw retirement income diminish to near zero, as the Fed relentlessly drove down both short- and long-term interest rates. With college tuition soaring, the only way their children could get the education that would provide a modicum of hope was to borrow; but, with education loans virtually never dischargeable, student debt seemed even worse than other forms of debt.

... ... ...

The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society.

[Dec 05, 2015] The Real Stuff Economy Is Falling Apart Zero Hedge

www.zerohedge.com
What is the service sector? Mostly software, restaurants, banks, construction companies, retailers, doctors and hospitals.

Can an economy thrive if it doesn't make or move physical things? Intuitively the answer is no, because most of the services mentioned above either maintain the status quo (like healthcare and restaurants) or (like houses) consume rather than build capital. As for banking, in its current incarnation it's almost certainly a net negative, draining capital from productive uses and funneling it to trading desks and political action committees.

The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting. As with so many of today's monetary and fiscal experiments, no one knows when definitive results will come in. But the data so far aren't encouraging.


Noplebian

History shows when the fiat currency system reaches it's end cycle, there is always a call for war. This one however, will wipe out billions!

http://beforeitsnews.com/conspiracy-theories/2015/12/road-to-ww3-time-to...

Eyeroller

"The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting."

Should read:

"The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting while the MSM tells us how awesome everything is."

toady

Another "oldy-but-a-goody". This "transition from a manufacturing to a services economy" has been going on since before NAFTA, and it's now almost finished we'll finally get to see what the Reagan-Bush1 voodoo economics hath wrought.

Good times!

Amish Hacker

In politics, "definitive results" do not exist. Causes and effects can be, and are, argued and denied ad infinitum , in spite of overwhelming evidence to the contrary. For example, Cheney & the neocons still claim they did the right thing in Iraq & Afghanistan, and proudly boast that they would do the same thing again today. Keynesian economists will argue that they made no mistakes over the last 8 years, we just didn't apply their prescriptions aggressively enough. And so on.

In politics, confirmation bias is the leading cause of blindness.

[Dec 04, 2015] The alleged 'decoupling' of GDP from energy

peakoilbarrel.com
Don Stewart, 12/01/2015 at 12:25 pm

Dear Ron and Others
Relative to the alleged 'decoupling' of GDP from energy. Please see:
http://www.pnas.org/content/112/20/6271.full
The material footprint of nations

The apparent decoupling turns out to be mostly a mirage. It is true that rich countries outsource some of the more energy and materials intensive operations to poor countries, but if you count back from consumption, the rich countries are essentially as energy and materials dependent as they ever were. For fossil fuels, the coefficient is 90 percent…a 90 point increase in fossil fuels is needed for a 100 point increase in GDP.

Part of what happens can perhaps be understood by thinking about beef imports. If England imports beef from Africa, then there is a great deal of materials and energy consumed in Africa to produce the beef. Only a small percentage of the resource used gets exported to England. If you start with the steak in England and look back at the supply chain, you find that the consumption of the pound of steak in England was responsible for the consumption of lots of energy and materials in Africa.

I think that 'decoupling' is not the same as energy efficiency. Suppose, for example, that we look at the efficiency with which firewood is burned in an ordinary house. Back in the olden days, the wood was burned in a fireplace, which is inefficient. Then Franklin invented the Franklin stove and heating became more efficient in terms of calories of usable heat per cord of wood. But the stove wasn't necessarily any less or more expensive than the fireplace. Since GDP essentially measures cash outlay, the increased efficiency doesn't necessary have any direct impact on GDP.

Recently, we have begun to adjust GDP for 'hedonic factors'. Suppose, for example, that one has an old radio with lots of static and poor sound quality. Then one buys a new radio with better sound quality. But suppose that the price you pay for the new radio is the same as it was for the old radio. GDP would be the same for both radios. But, recently, the US government has begun to make adjustments for the quality of the sound.

Whether the hedonic adjustments make any sense depends on what sort of question you are trying to answer. If you are asking 'will my radio company be able to pay our debts?', then all that matters is your actual income. The fact that you had to improve the sound quality in order to remain competitive is an ancillary fact. If you are not getting any more income, then paying your debts doesn't get any easier.

Don Stewart

Fred Magyar, 12/01/2015 at 1:41 pm
Why the GDP Is Not An Good Measure of A Nation's Well Being
https://goo.gl/xKKHZx

In their book, The Spirit Level: Why Greater Equality Makes Societies Stronger (link is external), Professors Richard Wilkinson and Kate Pickett, present data taken from multiple credible sources that show the gap between the poor and rich the greatest in the U.S. among all developed nations; child well being is the worst in the U.S. among all developed nations; and levels of trust among people in the U.S. among the worst of all developed nations.

The Subcommittee on International Organizations, Human Rights and Oversight of the U.S. Congress' House Committee on Foreign Affairs stated, after examining the issue of the U.S.'s declining image abroad, "the decline in international approval of U.S. leadership is caused largely by opposition to the invasion of Iraq, U.S. support for dictators, and practices such as torture and rendition. They testified that this opposition is strengthened by the perception that our decisions are made unilaterally and without constraint by international law or standards-and that our rhetoric about democracy and human rights is hypocritical."

The US ranks 114th out of 125 countries in international peace and security.

http://www.goodcountry.org/

To those in power who believe that only strength counts, and that people are always self-interested, I say "We tried it your way, and it didn't work. Let's try something new."

Simon Anholt

Ves, 12/02/2015 at 8:49 am
Hi Dennis,
I see up there little discussion about GDP and what it means.
Let's say:
Country A: use washable rags to clean kitchen counter-tops.
Country B: use paper towels to clean same kitchen counter-tops.

As result they both have clean kitchen counter-tops but Country B has higher GDP due to use of paper towels.

So GDP means absolutely nothing or anything depending what you want to present.

GDP is like looking at the sunset and your mind is thinking that you are actually looking at the sunset. But it takes 8 minutes for sunlight to reach the earth and that sun that we think we are looking at is already gone. (Since this site is loaded with scientist they can correct me with if that 8 minutes is more or less correct )

Anyway, mostly GDP is used by some "smart" people we call economist to tell us some "story". For example they tell us: "You see sunny boy that GDP is big number this year, bigger than one from last year. So you should be content and happy. Not convinced? Don't worry we will "super size" that GDP for you next year. Isn't your tummy already feeling full and content?"

This kind of storytelling is usually printed as financial news about GDP. Meaningless if you ask me from the point of average citizen.

I have to go now because I have whole day of work planned for me by this economy and I will catch you later tonight to see your thoughts. Another thing that crosses my mind is how come that we work more or at least the same now when oil is at $40 compared to when oil was $100 last year? Wasn't the official meme that use of oil as our biggest invention beside sliced bread, made our life easier so we actually work less and spent more time with family & friends and doing odd staff like canoeing How come I don't feel that I did not get 60% discount due to price of oil in terms of work load from the last year Who is pocketing that 60%
How about employed folks who bought kiwi Leaf? Do they work less and have more time with family and friends or they are paddling in the same hamster wheel we call economy?

Dennis Coyne, 12/02/2015 at 12:39 pm
Hi Ves,

I agree GDP is a poor measure of well being. Another example would be World War 2 where a lot of output was created to destroy stuff (tanks, bombs, planes, ships, guns, etc), then stuff was destroyed, cities and other infrastructure in Europe and Asia and then it was rebuilt leading to a lot of economic growth. Were we better off? Probably not, especially the millions who died and their families.

GDP has many problems, beyond paper towels and paper plates and other wasteful (in my opinion) uses of resources.

I did a different chart using the human development index (HDI) from 1980 to 2013 which shows World primary energy use per unit of HDI(a dimensionless number) has been increasing roughly linearly, not decreasing as is the case for energy intensity.

The HDI is also far from perfect as a measure of human welfare, but probably better than GDP.

[Dec 03, 2015] GDP and energy

Notable quotes:
"... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."
"... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."
"... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."
"... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."
peakoilbarrel.com

VK, 11/30/2015 at 4:10 pm

So much for decoupling…

http://www.theguardian.com/commentisfree/2015/nov/24/consume-conserve-economic-growth-sustainability

"A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. It points out that governments and economists have measured our impacts in a way that seems irrational.

Here's how the false accounting works. It takes the raw materials we extract in our own countries, adds them to our imports of stuff from other countries, then subtracts our exports, to end up with something called "domestic material consumption". But by measuring only the products shifted from one nation to another, rather than the raw materials needed to create those products, it greatly underestimates the total use of resources by the rich nations.

For instance, if ores are mined and processed at home, these raw materials, as well as the machinery and infrastructure used to make finished metal, are included in the domestic material consumption accounts. But if we buy a metal product from abroad, only the weight of the metal is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries like China and India, the rich nations appear to be using fewer resources. A more rational measure, called the material footprint, includes all the raw materials an economy uses, wherever they happen to be extracted. When these are taken into account, the apparent improvements in efficiency disappear."

BC, 11/30/2015 at 4:37 pm
VK, precisely. The US has been in a net-exergetic deficit in debt-money-based terms per capita since the mid- to late 1960s to mid-1970s to mid-1980s, having compensated by increasing to an unprecedented level to date debt to wages and GDP.

Moreover, the BEA-determined industry requirement costs as the basis of estimated gross and real value-added output (what we refer to as GDP), adjusted for our net-exergetic deficit in debt-money terms, the US has been in recession/"slow-motion depression" since Q4 2000-Q1 2001, and the world since 2005-08.

Senior BEA, BLS, Commerce, White House economic advisors, CIA, NSA, military intelligence, and Pentagon planners all know this in varying degrees as it relates to their imperatives and prerogatives.

However, the mass public and most political leaders are utterly unaware, or in the case of the latter, have no incentive to know or to share with the public what they know because they will not be able to raise a nickel thereafter for reelection if they do share.

And so it goes . . .

Ron Patterson, 11/30/2015 at 5:02 pm
Thanks VK, I suspected as much.

He told me that he and his colleagues had conducted a similar analysis, in this case of the UK's energy use and greenhouse gas emissions, "and we find a similar pattern". One of his papers reveals that while the UK's carbon dioxide emissions officially fell by 194m tonnes between 1990 and 2012, this apparent reduction is more than cancelled out by the CO2 we commission through buying stuff from abroad. This rose by 280m tonnes in the same period.

GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass.

Jimmy, 12/02/2015 at 11:38 am
I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling.

Only a divergence due to more units of GDP produced per unit of energy consumed. When somebody can create units of GDP and consume no energy at all then we will have decoupling. Coupling and decoupling are all or none terms/states of being. You're either coupled or your decoupled. Any arguments to the contrary are pedantic and uninformed.

Ron Patterson, 12/02/2015 at 11:58 am
Thanks Jimmy, with all the Pollyannas on this site I need all the support I can get.
Dennis Coyne, 12/02/2015 at 1:56 pm
Hi Jimmy,

Look up the meaning of decouple it is reduce or eliminate the effect of one part of a circuit on another. In this context the appropriate meaning is reduce.

Doesn't really matter, nobody thinks that energy inputs can be eliminated, that would be absurd.

Dennis Coyne, 12/01/2015 at 8:07 am
Hi VK,

The problem is solved by looking at World output and World primary energy use.

Energy intensity for the World has improved, though during the Chinese rapid expansion from 2000-2010, the progress stopped for a decade as energy was not used very efficiently in China over that period, since 2010 the progress has continued. Energy intensity is energy per unit of GDP produced.
Chart below for 1965 to 2014 using World Bank(from FRED), UN, and BP data.

Left vertical axis is in metric tons of oil equivalent (toe) per millions of 2005$ of real GDP (M2005$).

Javier, 12/01/2015 at 9:23 am
Hi Dennis,

That graph shows several things mixed that have co-evolved independently, so not many conclusions can be extracted.

  • -It reflects improvements in energy usage, meaning we are able to extract more economic yield per unit of energy. This is the only real efficiency improvement.
  • -It reflects increase in debt, that is reflected in GDP but does not use energy. If I borrow money GDP increases yet no energy is used.
  • -It reflects increase in tertiary economy at the expense of primary and secondary economies. We pay more for services and less for resources and goods.

We don't know the contribution of each to that graph (at least I don't), but given the magnitudes involved I would guess that the real efficiency improvement is small. This is supported by how the graph reacts to recessions (not the Chinese expansion as you claim), indicating that the main factor is economic, not energetic.

Now we know that debt has a limit, and once debt saturation is reached the economy, and specially the tertiary sector would be very badly affected. If that happens we might very well see that graph turn around and energy intensity increase.

Dennis Coyne, 12/01/2015 at 1:56 pm
Hi Javier,

GDP only increases if your money is spent on goods or services. It is output of goods and services. On a World level the debts and liabilities balance, so if I save my money and lend it to you, I spend less and you spend more. You should review your economics. At a World level, the debt has no effect, assuming we don't have ant interstellar debts. There was a World recession from 2000 to 2010? I hadn't heard about that.

Yes services might have increased, if that is what people want to spend their money on, then the share of services in the economy will increase. I don't have figures on the "non-service economy". Part of this increase reflects women entering the labor pool in greater numbers, some of the work cleaning the house or taking care of the garden are now part of GDP when before they were taken care of by the family. We may not have good data for the World on this effect.

Javier, 12/01/2015 at 2:21 pm
Dennis,

I think I do understand. If I go to the bank and ask for a 200,000 $ mortgage loan, that money is created from thin air, and when I go and pay for the house, GDP jumps by 200,000 $, so yes, increasing debt increases GDP as soon as the debt money is used. Since no oil was used to create the money, it counts as a reduction in oil intensity. Of course if I return the money to the bank the operation is reversed (they do keep the interests), but since on average debt is always expanding, except during crisis periods, oil intensity is always decreasing, except during crisis periods. Debt that is used to buy stocks or companies or to extract oil from the ground is the same.

Dennis Coyne, 12/01/2015 at 3:16 pm
Hi Javier,

The point is that you purchased a $200,000 house. That house was not created from thin air, not my house anyway. :)

It is not the debt, it is building a house that creates the GDP.

Rune Likvern, 12/01/2015 at 3:26 pm
So what comes first; The debt that allows for building the house, or first building the house and then creating the debt?
Dennis Coyne , 12/01/2015 at 3:47 pm
Hi Rune,

In most cases the debt will come first if the home is purchased with financing. It is possible to build a home using savings, in which case there would be no debt.

So the debt is not a requirement for GDP, just creating a new house, car, or other good or service.

Would GDP be lower if there were no debt, of course!

As long as debt grows at reasonable rates (similar to GDP growth at full employment), when there is a recession debt will initially grow faster than GDP and then will slow down until GDP growth catches up and surpasses the debt rate of growth.

Dennis Coyne, 12/01/2015 at 4:25 pm
Hi Rune,

I am curious. Do you think what Javier is saying is correct? Energy intensity has decreased because Debt to GDP ratios have increased? I am pretty sure Javier is not right, but you are very knowledgeable about economics. Perhaps you can explain it to me, if I am mistaken.

If all GDP was created with no debt (all of it was based on savings and income with no new borrowing) in year 1. And in year 2 50% of income was borrowed from banks to create the same level of GDP, would that mean in year 2 we have 150% of the first year because of the debt?

I don't think so, but I may be missing something.

Nick G, 12/02/2015 at 2:14 pm
Dennis,

Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP.

Let's say there two houses on an island, and 2 residents, 1 in each house. One owns both houses, the other rents from the 1st. Then the renter borrows from the owner, and buys the house he/she lives in. Their monthly payment was rent, now it's a mortgage payment. The renter is now leveraged.

But, has anything "real" changed? No. Same amount of wealth, same amount of income, with different kinds of ownership, and different obligations (the renter now has to fix his own roof!).

Dennis Coyne, 12/01/2015 at 4:16 pm
Hi Javier,

You should read up on national income accounting. Debt does not really come into play, and more or less debt says absolutely nothing about the energy intensity of GDP. The chart I created is primary energy in metric tons of oil equivalent divided by real GDP in millions of 2005$. Debt plays no role.

Try the following link for a detailed introduction to national income accounting:

http://grizzly.la.psu.edu/~bickes/nia.pdf

Javier, 12/01/2015 at 7:06 pm
Dennis,

I still disagree. It is well known that the increase in debt has a positive effect on GDP, while the total outstanding debt can become a drag on GDP if too high. It is difficult to sustain that debt plays no role in GDP in light of the evidence.

For example China has had a phenomenal rate of growth accompanied by the highest rate of debt growth that the world has seen.

I think it is easy to understand.

  • Country A finances everything with savings and profits without increasing debt and sees an increase in GDP of 2%.
  • Country B finances half of the goods and services with an increase in debt and sees an increase in GDP of 2%.

Both countries use the same oil so both report the same oil intensity. However country B has brought half of the wealth used to increase the GDP from the future without bringing any future oil. That wealth will have to be repaid eventually, detracting from future GDP but at that point no oil will be recovered.

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

Net effect is that debt reduces oil intensity when it is created and it increases oil intensity when it is payed. We have not seen that yet because we have not paid any debt yet. Debt is always increasing.

Dennis Coyne, 12/01/2015 at 10:17 pm
Hi Javier,

Many problems with your example.

First we need the GDP level of countries A and B, not just their growth rate. If we only talk about the incremental increases in GDP and energy use for each country it makes a little more sense.

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

What you say above is incorrect.

For simplicity I will assume if output grows by 2%, that energy use also grows by 2%, I will further assume each country has the same GDP, we will say it is $100 million before the 2% growth in your example.

If country B does not take on any debt and its GDP grows by 1%, then its energy use will also grow by 1% (not by 2%) as the energy use is proportional to GDP. So the energy intensity would remain the same. There is no reason for it to change, it depends on technology and the structural features of the economy (proportion of agriculture, manufacturing, and services).

Another basic fact of economics is that the loans taken out by a business are to take advantage of a business opportunity and they will tend to lead to higher growth, so your example is flawed.

If countries A and B are of similar size and similar levels of development (twins as it were), then if country A and country B both shunned any borrowing they will both grow at the same rate, say 2% and have the same energy intensity (energy use also grows by 2%). Let's now assume both countries are the same except that country A's culture is such that they think debt is bad, but country B does not have the same aversion to debt.
Country B borrows at 2% interest to take advantage of an investment opportunity which will have a rate of return of 4%, so country B grows faster than country A at 3% and its energy use also grows at 3% (energy intensity remains the same). The extra income earned is used to pay back the debt and the individual businesses come out ahead earning a net profit of 2% after paying back the interest. This is how rational businesses operate, they borrow money to make money.

Javier, 12/02/2015 at 8:54 am
Dennis,

I also have lots of problems with your example, so let's take a step back to look at the big picture.

That an increase on debt increases GDP is not in doubt. It is not only supported by evidence, but the basis for an entire economic theory that supports fighting recessions with debt-based stimulus.

So the question is if an increase in debt increases also GDP without oil consumption as to reduce oil-intensity. The answer is a resounding yes. Financial services are proportional to debt increase. Net interest expenses in the financial sector are seen as production and value added and are added to GDP. Any service charged by financial companies also increases GDP, and none of this economic activities uses oil, and very little energy.

I believe that a significant part of oil intensity reduction has come from the financialization of the economy linked to debt-increase, and therefore oil intensity is a fake measure of oil decoupling. If you look at energy-intensity you see the same phenomenon as with oil. It seems that we are decoupling from energy because we are moving towards a fake economy based on financial instruments. Finanzialization also appears linked to raising inequality as it effect is to increase the wealth only of owners of financial instruments.

I do not doubt that some oil and energy efficiency is real, after all it is a process that has been going on forever since the first oven was built to cook. But I seriously doubt that it is a process significant enough to solve an energy deficit problem which is what peak oil is going to bring. And to me oil intensity is a fake measure of increases in oil efficiency, that I do not doubt are real but much overstated.

Gail Tverberg has a lot more to say about decoupling GDP growth from energy growth in her article at TOD for anybody interested in the matter:

http://www.theoildrum.com/node/8615

Javier, 12/02/2015 at 9:23 am
Or to put it more clearly:
  • These two things are related. And decoupling is largely a myth.
  • In blue US energy intensity inverted

Dennis Coyne, 12/02/2015 at 10:43 am
Hi Javier,

Yes the financial sector has increased to a small degree from 4% of GDP to 8% based on the chart you posted (which is only for the United States rather than the World).

This has probably increased to some degree (more or less than the US is unknown) at the World level as well. This might explain a very small slice of the decrease in energy intensity, but I doubt it accounts for most of the change.

I agree with you that changes in the structure of the World economy (higher proportion of services) has probably decreased energy intensity, but I doubt that accounts for all of the change. The bottom line is that the World economic system is becoming more service oriented with services accounting for a larger share of GDP. At some point, services may reach some maximum level, in percentage terms, beyond which they cannot go. I don't know where that level is, debt levels will also reach some maximum level (in percentage terms) beyond which they cannot rise (maybe total debt of 300% to 350% of GDP at a World level as a potential maximum).

When those points are reached growth may be limited by how much more efficiently we can use energy and how quickly we can ramp up alternative energy as fossil fuel output declines. There is much that is unknown about the future.

Dennis Coyne, 12/02/2015 at 10:51 am
Hi Javier,

Note that you keep talking about oil, the chart shows primary energy (all forms of energy used by the economic system.)

Can you explain why country B in your example uses the same amount of energy whether it grows at 1% or 2%. One would expect that the energy use would be proportional to GDP, as that is what the World data shows.

Javier, 12/02/2015 at 11:55 am
Dennis,

That is not what I said or meant. Country B by increasing GDP 1% through an increase in debt is in essence bringing GDP from the future to the present. That borrowed GDP is using present energy.

The financial sector has increased from 2% to 8%, a 4x increase. This is not small peanuts. Specially considering that only a minor part of the financial transactions are considered towards GDP. Probably only Luxembourg and perhaps Switzerland and other banking paradises have a bigger share.

Dennis Coyne, 12/02/2015 at 2:01 pm
Hi Javier,

You said:

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

You say above without the borrowing country B would grow by 1% (why does it grow less than country A?) but it uses the same amount of oil as country A, why if it grows more slowly?

Dennis Coyne, 12/02/2015 at 5:57 pm
Hi Javier,

Look closely at your chart in 1970 (when energy intensity started to decline) it was 4% and the most recent points on the chart are about 8.4%. I used the data from your chart (even though it is for the US rather than the World) and did an exponential trend from 1970 to 2010 for 4% to 8% and then extended to 2014 (8.5%) for financial GDP of World economy (probably not correct, but this is an illustration). Then I found the Energy intensity of the non-financial sector by assuming the financial sector has zero energy inputs (I expect they are low, this is an approximation). The Non-Financial Energy intensity is in the chart below.

Finally, Aggregate Demand is increased when there is more debt, but consider the Aggregate supply of goods produced to meet that demand. Whether the aggregate demand is because of private or public debt or not does not change the amount of energy needed to produce the supply of goods and services, it only changes how much demand there will be for those goods and services. I really cannot make it any simpler than that. Oh one more thing, do you think the energy needed to build a car (total energy embodied in all processes used to create the car and its components) changes if someone pays cash for the car vs financing the car?

Rune Likvern, 12/01/2015 at 2:23 pm
Dennis,

Bank of England has a different take on this;

" This article explains how the majority of money in the modern economy is created by commercial banks making loans.

Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits."

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Dennis Coyne, 12/01/2015 at 3:37 pm
Hi Rune,

Yes that is correct. The banks create money by lending and borrowers destroy money as they pay back their loans. The money supply is controlled by the Central Bank buying and selling bonds.

The debt is only a problem if it grows too quickly. If the rate of debt growth slows or the rate of GDP growth increases there will not be a problem. There are differing views on how much debt is too much.

For public debt there is:

http://www.economist.com/blogs/freeexchange/2015/06/public-debt

http://www.forbes.com/sites/michaellingenheld/2015/10/22/the-world-needs-more-debt/

Rune Likvern, 12/01/2015 at 5:45 pm
Dennis,

Did you read the document from Bank of England?

Dennis Coyne, 12/02/2015 at 8:30 am
Hi Rune,

Yes I did. Under normal circumstances the supply of money is primarily influenced by the interest rate that is paid by commercial banks for money borrowed from the central bank. When the economy is in a severe recession and this interest rate falls to the "effective lower bound" (about 0.5%), the central bank loses its ability to increase the supply of money through lower interest rates.

Under these circumstances the central bank will buy assets (government bonds) to increase the money supply, it does not sell assets to reduce the money supply, it simply raises the interest rate it charges the commercial banks.

Dennis Coyne, 12/02/2015 at 8:18 am
Hi Rune,

Thanks for that link, it is a nice review of how central banks influence the supply of money by setting the interest rate which banks must pay on money borrowed from the central bank, which feeds through to interest rates throughout the economy and affects saving and borrowing through market interest rates set by banks.

I would encourage Javier to read that link as it addresses many misconceptions about money.

Glenn Stehle, 12/01/2015 at 10:00 am
Dennis,

You are comparing apples to oranges. GDP is determined using a price, or market, theory of value. So you are comparing a value determined using a market theory of value to a value determined using an intrinsic theory of value - the toe of energy.

If you want to compare apples to apples, then you have to compare GDP to the market value of the energy used.

Dennis Coyne, 12/01/2015 at 1:41 pm
Hi Glenn,

If we are concerned the energy constraints will limit real GDP, then the amount of energy consumed per unit of GDP produced is very relevant in my view.

It is not a comparison, it is a measure of energy intensity and how it has changed over time. See

https://en.wikipedia.org/wiki/Energy_intensity

I have simply charted the World Energy Intensity from 1965 to 2014.

Glenn Stehle, 12/01/2015 at 10:17 pm
Well again, Dennis, a valid comparison is one which compares dollars and cents to dollars and cents, not dollars and cents to toe.

There was a time (1970 to 2010) when the EIA published the total amount spent in the United States on energy. I have plotted the ratio of total spent on energy to total nominal GDP for those years. This is a true measure of "energy intensity," as it compares apples to apples, and does not omit the price of energy as your graph does.

I have added YOY growth in real GDP (calculated using constant 2009 dollars).

I don't want to draw too many conclusions from the graph, but it paints a far bleaker picture than your graph does. When energy intensity goes over .08 - as it did in 1974 and 2008 - then the economy began having convulsions.

The period from 1983 to 2006 is what is known as "the Great Moderation." It is also a period of low and generally declining energy intensity. When energy intensity began increasing again, as it did in 1999, surpassing .08 in 2006, then this marked the end of the Great Moderation. Is this mere coincidence?

Botton line: In my opinion not only is the quantity of energy (measured in toe) important to the performance of the economy, but the price of that energy is also important.

Using your graph, which makes no allowance for the price of energy, it is easy to see how you have come to believe that the economy is decoupling from energy.

Dennis Coyne, 12/02/2015 at 8:52 am
Hi Glenn,

It is not a comparison of money spent, energy intensity is defined as energy consumed per unit of output (measured in dollars) as there are many different goods and services and their monetary value is measured in constant dollars.

The difficulty with using price is that there are many different forms of energy (oil, coal, natural gas, nuclear, hydro, solar, wind, geothermal, and biofuels) which are included in the "primary energy" category. Note that your chart shows only one country not the world. I would present a chart for the World if I had it, I am using the data I have for primary energy divided by real GDP. I think it is useful because it is energy contraints we are concerned about, currently some forms of energy (fossil fuels especially) have very low prices so in monetary terms money spent on Energy divided by real GDP would be quite low.

Energy prices are quite volatile so I like the Energy intensity measure better as it shows energy needed to produce a unit of GDP, which has in fact declined since 1970 by about 30%(or an average annual decrease of about 0.8% per year).

Glenn Stehle, 12/02/2015 at 12:28 pm
Dennis,

I suppose price doesn't matter as long as one can get somebody else to pick up the tab.

For instance, we can compare a new $40,000 Chevy Bolt ev to a new $20,000 Honda HRV. There's no way the Bolt can compete on price. But if you can get somebody else to pick up the tab for the Bolt? Well then, no sweat!

As part of its COP21 coverage, CBS did a puff piece on their Evening News last night about how EVs are sweeping Norway.

http://www.cbsnews.com/videos/how-electric-cars-are-taking-over-norways-roads/

They interviewed one fellow who said he "had done the math" and will be able to drive his new EV "for free."

So I did a little bit more digging, and sure 'nuf, it looks like he's right.

According to the Wall Street Journal, Norway currently has 54,000 EVs on the road. Last year their owners received $540,000 in various forms of rebates, tax breaks and other perks from the Norwegian state. That's a cool $10,000 per car per year. So at that clip, it would only take 4 years to recover the cost of a $40,000 EV. And then after that one can enjoy almost free driving, all on the government's tab.

http://www.wsj.com/articles/electric-car-perks-put-norway-in-a-pinch-1442601936

But it looks like there's trouble in paradise. The WSJ says the government give-a-ways are set to end. The day of reckoning is still up in the air, but the latest date for phasing out the government largess is 2020. So the Norwegian government is taking the punch bowl away. The EV crowd, of course, isn't taking this horrible injustice lying down:

Christina Bu, secretary-general of the lobbying group Norwegian Electric Vehicle Association, said the 25,000-member association has been stalking political parties and government officials to ensure the main incentives remain in place, at least until 2020.

"If you cut all the incentives overnight, sales will plummet," she said.

Weaning buyers from such purchase incentives could add new headwinds to sales of vehicles already undercut by cheap fuel prices in some markets. In the U.S., the state of Georgia halted its $5,000 tax credit on July 1. Electric cars were about 2% of purchases in the state in 2014, estimates Washington-based think tank Keybridge Research LLC. It forecasts a 90% decline, or 8,700 fewer sales annually, as a result of the loss.

Glenn Stehle, 12/02/2015 at 1:06 pm
Edit

Last year their owners received $540 million in various forms of rebates, tax breaks and other perks from the Norwegian state.

Dennis Coyne, 12/02/2015 at 2:06 pm
Hi Glenn,

Do you have the price of primary energy from 1965 to 2014? I would be happy to do the chart you would like, but I don't know the appropriate price of energy, which has many different forms and prices throughout the World.

I agree price matters, as does the amount of energy available to purchase (which is what is in my chart).

Nick G, 12/02/2015 at 2:32 pm
Glenn,

You're looking at something different.

The original study in question was asking about whether an economy can grow without increasing it's inputs of oil, steel, etc.*

That's a very different question than whether an economy will be hurt by a sudden increase in the price of a key commodity, like oil. If the price of oil spikes, that can create a shock for the economy (e.g., people wait to see what happens with prices before they buy their next vehicle, and that delay causes a recession), but an increase in prices doesn't mean energy consumption has gone up.

-----------------
* (it can, of course, but that's separate issue from whether our societies have chosen to do so).

Ralph, 12/02/2015 at 8:46 am
I am far from convinced that GDP growth is a good way of measuring progress in a society. Let's take an example from the UK economy. (btw I am not worried about the genders here, I would happily be a house husband if my wife's earning potential was close to mine).

Today, nearly 70% of women of working age work. Families need both incomes to meet a reasonable standard of living. As a result, a large majority of UK children grow up in families with both parents working. Many parents end up sending young children to child minders and crèches so that they can work. This employs a lot of people, mostly women. More wealthy families then employ house cleaners and gardeners and handymen etc. to clean, garden and repair their homes that they don't have time to do themselves. Poorer people do without. This employs a lot more people. All the working women and the people employed by the working women pay taxes which means that people end up working more hours to afford to pay someone else to do these jobs than it would take to do the jobs themselves. Unless your own rate of pay is significantly higher than the people you pay to do the jobs, you would be financially better off doing it yourself. The government and the economists are delighted because tax take and GDP rise. All these extra people in useful employment driving around from low skilled job to to low skilled job, consuming extra resources, especially fossil fuels, when they would be a lot less stressed, more free time and financially better off, just doing all these activities for themselves.

It is a major mistake to professionalise low skilled domestic work. All it does is free up time for the rich and increases government tax take. Society as a whole is worse off.

Dennis Coyne, 12/02/2015 at 10:14 am
Hi Ralph,

I agree GDP is by no means a perfect measure, just a measure that is available at the World level. There are other measures such as the social progress index, but this is not available at the World level. There is also the United Nations Human Development Index(HDI), but again these measures are not published at the World level (or I couldn't find it). Actually I found some World data for the HDI from 1980 to 2013. The measure is not perfect see link below for data:

http://hdr.undp.org/en/content/table-2-human-development-index-trends-1980-2013
Discussion of HDI at

https://en.wikipedia.org/wiki/Human_Development_Index

Also from UN document:

Human Development Index (HDI): A composite index measuring average achievement in three basic dimensions of human development-a long and healthy life, knowledge and a decent standard of living. See Technical note 1 (http://hdr.undp.org/en) for details on how the HDI is calculated.

Chart below with World Primary energy (ktoe) divided by World HDI from 1980 to 2013. Based on the HDI, more energy is needed to improve well being and GDP is not a good measure of human welfare.

There is also an index for HDI that takes account of inequality, but the index (called IHDI) is only available from 2010 to 2013.

[Nov 01, 2015] A Market Worthy Of The Line Do You Feel Lucky

Notable quotes:
"... Oh, and by the way, it was also this same so-called "smart crowd" who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let's not forget – 1.5% GDP is now formulated with "double seasonally adjusted accounting." i.e., If the print isn't what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter. ..."
"... Gordon Gekko: The richest one percent of this country owns half our countrys wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. Its bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now youre not naive enough to think were living in a democracy, are you buddy? ..."
"... The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down. Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time. ..."
"... I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation. I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win. You could dump money into it/invest by betting on your favorite algo. In my mind the whole thing is pretty complicated, but thats the gist of it. Anyway.... ..."
Nov 01, 2015 | Zero Hedge
The now immortal line spoken by Clint Eastwood as "Dirty Harry" (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you're investing as opposed to gambling? These markets are now poised to show everyone the difference.

From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn't it be up here? After all, the economy is absolutely booming right? Right?

So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn't. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.

As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the "inventory" figures as a good news catalyst. Only an economist can find "good news" in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.

Oh, and by the way, it was also this same so-called "smart crowd" who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let's not forget – 1.5% GDP is now formulated with "double seasonally adjusted accounting." i.e., If the print isn't what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.

What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.

Looking at the markets "its hard to argue with price" is the old saw. And that price is, as iterated earlier, extremely high.

That's just fantastic if you're an "investor" with the tendencies of a river boat gambler. However, if you're someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you're out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now "What Fed. official will say what today?" Heaven help you if it's the opposite of what they said the previous day. Like the title implied, "Do you feel lucky?" doesn't seem that out of line.

Boris Alatovkrap

Ignore "invisible hand", but eventually is b*tch-slap those that defy.

Escrava Isaura

Invisible Hand?

How about the rabbit hand.

Gordon Gekko: The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy?

antonina2

The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down. Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time. So, you could say the market or price action has been more or less decoupled from the true state of its underlying. Supply and demand due to fundamentals was true before hft and multiple exchanges, but can now be skewed in any direction for any length of time due to all the new technology and types of order flow that have been introduced. As long as people are getting paid to provide liquidity and other people are there to pay for taking liquidity away you can have a market that reaches the moon and beyond while the world is in a deep recession. So, if you think about it, while the pundits will have you believe that the market is priced at true valuations, it's not your Grandpa's market anymore, that is why the market can go up on relatively small volume and shitty data. It is a whole new game and beside disastrous glitches, the only time positive movement is threatened is when the big fish start placing large sell order blocks.

I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation. I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win. You could dump money into it/invest by betting on your favorite algo. In my mind the whole thing is pretty complicated, but that's the gist of it. Anyway....

It is my belief that things have developed in this manner to keep big money in the markets. So, I guess the question isn't what is up with the markets, but rather why do large holders continue to hold, my guess would be that they don't have anything else they want/need to do with their money. They say, who cares if Bob, Jen, Greg, and half of America can't find a decent job, we are making more money investing in the market (greater shareholder returns) than by helping to improve the actual economy and investing in more tangible things like people. It's pretty shitty, but that is how I have come to make sense of the whole thing. I mean yeah, the market should be about half of what it is now if it followed fundamentals, but it's not and I think that's why.

Basically, in order for there to be the big market crash that everyone constantly talks about, some pretty big institutions are going to have to fuck up big time and receive no help in getting out of it. As long as there is enough money out there this fiasco can go on as long as people see fit. We all say, oh the FED is dumb and they are doing the wrong thing blah blah blah and while they are destroying the economy they are keeping the TBTF in the clear and being rewarded handsomely for it, completely aware of their actions. And to the public, they say fuck em and feed em cake, so just watch, a Republican with a great tax package will be elected in 2016 to satiate the people for the next four years while they continue to go about their business, increasingly bad data is reported and retail investors are like wtf is up with the markets?

IDK, that's just my humble opinion

[Oct 18, 2015] What Prosperity Is, Where Growth Comes from, Why Markets Work

Notable quotes:
"... In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output." ..."
"... In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. ..."
"... Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society. ..."
"... Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. ..."
"... And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous. ..."
"... This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems. ..."
December 1, 2014 | Democracy Journal ( also reprinted in Evonomics )

The Price of Everything, the Value of Nothing

The most basic measure we have of economic growth is gross domestic product. GDP was developed from the work in the 1930s of the American economist Simon Kuznets and it became the standard way to measure economic output following the 1944 Bretton Woods conference. But from the beginning, Kuznets and other economists highlighted that GDP was not a measure of prosperity. In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output."

In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. Some countries have experimented with other metrics to augment GDP, such as Bhutan's "gross national happiness index."

Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society.

Since the field's beginnings, economists have been concerned with why one thing has more value than another, and what conditions lead to greater prosperity-or social welfare, as economists call it. Adam Smith's famous diamond-water paradox showed that quite often the market price of a thing does not always reflect intuitive notions of its intrinsic value-diamonds, with little intrinsic value, are typically far more expensive than water, which is essential for life. This is of course where markets come into play-in most places, water is more abundant than diamonds, and so the law of supply and demand determines that water is cheaper.

After lots of debate about the nature of economic value in the nineteenth and early twentieth centuries, economists considered the issue largely settled by the mid-twentieth century. The great French economist Gerard Debreu argued in his 1959 Theory of Value that if markets are competitive and people are rational and have good information, then markets will automatically sort everything out, ensuring that prices reflect supply and demand and allocate everything in such a way that everyone's welfare is maximized, and that no one can be made better off without making someone else worse off. In essence, the market price of something reflects a collective judgment of the value of that thing. The idea of intrinsic value was always problematic because it was inherently relative and hard to observe or measure. But market prices are cold hard facts. If market prices provide a collective societal judgment of value and allocate goods to their most efficient and welfare-maximizing uses, then we no longer have to worry about squishy ideas like intrinsic value; we just need to look at the price of something to know its value.

Debreu was apolitical about his theory-in fact, he saw it as an exercise in abstract mathematics and repeatedly warned about over-interpreting its applicability to real-world economies. However, his work, as well as related work in that era by figures such as Kenneth Arrow and Paul Samuelson, laid the foundations for economists such as Milton Friedman and Robert Lucas, who provided a devastating critique of Keynesianism in the 1960s and '70s, and recent Nobel laureate Eugene Fama, who pioneered the theory of efficient markets in finance in the 1970s and '80s. According to the neoclassical theory that emerged from this era, if markets are efficient and thus "welfare-maximizing," then it follows that we should minimize any distortions that move society away from this optimal state, whether it is companies engaging in monopolistic behavior, unions interfering with labor markets, or governments creating distortions through taxes and regulation.

These ideas became the intellectual touchstone of a resurgent conservative movement in the 1980s and led to a wave of financial market deregulation that continued through the 1990s up until the crash of 2008. Under this logic, if financial markets are the most competitive and efficient markets in the world, then they should be minimally regulated. And innovations like complex derivatives must be valuable, not just to the bankers earning big fees from creating them, but to those buying them and to society as a whole. Any interference will reduce the efficiency of the market and reduce the welfare of society. Likewise the enormous pay packets of the hedge-fund managers trading those derivatives must reflect the value they are adding to society - they are making the market more efficient. In efficient markets, if someone is willing to pay for something, it must be valuable. Price and value are effectively the same thing.

Even before the crash, some economists were beginning to question these ideas. Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. Likewise, behavioral economists like Daniel Kahneman began showing that real people didn't behave in the hyper-rational way that Debreu's theory assumed. Other researchers in the 1980s and '90s, even Debreu's famous co-author Arrow, began to question the whole notion of the economy naturally moving to a resting point or "equilibrium" where everyone's welfare is optimized.

An emerging twenty-first century view of the economy is that it is a dynamic, constantly evolving, highly complex system-more like an ecosystem than a machine. In such a system, markets may be highly innovative and effective, but they can sometimes be far from efficient. And likewise, people may be clever, but they can sometimes be far from rational. So if markets are not always efficient and people are not always rational, then the twentieth century mantra that price equals value may not be right either. If this is the case, then what do terms like value, wealth, growth, and prosperity mean?

Prosperity Isn't Money, It's Solutions

In every society, some people are better off than others. Discerning the differences is simple. When someone has more money than most other people, we call him wealthy. But an important distinction must be drawn between this kind of relative wealth and the societal wealth that we term "prosperity." What it takes to make a society prosperous is far more complex than what it takes to make one individual better off than another.

Most of us intuitively believe that the more money people have in a society, the more prosperous that society must be. America's average household disposable income in 2010 was $38,001 versus $28,194 for Canada; therefore America is more prosperous than Canada.

But the idea that prosperity is simply "having money" can be easily disproved with a simple thought experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker's The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer tribe deep in the Brazilian rainforest. You'd easily be the richest Yanomamian (they don't use money but anthropologists estimate their standard of living at the equivalent of about $90 per year). But you'd still feel a lot poorer than the average American. Even after you'd fixed up your mud hut, bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches still wouldn't get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American typically has access to these crucial elements of well-being.

And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous.

This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems.

These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society's wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens. Every item in the huge retail stores that Americans shop in can be thought of as a solution to a different kind of problem-how to eat, clothe ourselves, make our homes more comfortable, get around, entertain ourselves, and so on. The more and better solutions available to us, the more prosperity we have.

The long arc of human progress can be thought of as an accumulation of such solutions, embodied in the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors 15,000 years ago, has a variety of products and services measured in the hundreds or thousands at most. The variety of modern America's economy can be measured in the tens or even hundreds of billions. Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access to products and services that provide solutions to human problems, we are hundreds of millions of times more prosperous.

[Oct 03, 2015] Reflections on Ten Years Deficits, the Financial Crisis, Textbook Economics and Data Paranoia

Oct 03, 2015 | Econbrowser

"When so many think the numbers are manipulated to some nefarious end, it is no wonder that empirical observations carry so little weight in informing thought on how the economy works."

[Sep 21, 2015] The Mystery Of The Missing Inflation Solved, And Why The US Housing Crisis Is About To Get Much Worse

For the last 20 years, realistic US inflation rate was probably higher then official figures considerably. Some estimate it between 4% to 5% a year. Medical expenses rose probably 200%. Cost of higher education skyrocketed. We can say that rent alone from 1995 to 1996 rose probably 60% (assuming 3% a year official figure). Food prices are highly correlated with oil and they rose more (but they do not represent major expense item in most budgets).
"... Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400. ..."
Sep 21, 2015 | Zero Hedge
We hinted at the key features of this unprecedented conversion in June, when we wrote the following:

... by now everyone knows that the artificially suppressed, "hedonically-modified" and seasonally-adjusted inflationary readings is what has permitted the Fed to not only grow its balance sheet to $4.5 trillion but to keep rates at 0% for 8 years. Because "how will the economy recover if there is no broad inflation", the Keynesian brains in the ivory tower scream, demanding more, more, more easing just to push inflation higher.

There is only one problem with this: it is all a lie - just ask any average American whose cost of living has soared in the past decade.

Still, with reality diverging so massively from the government's official data, reality just had to be wrong somehow.

Turns out reality was right all along, as revealed by the latest "State of the Nation's Housing" report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent - that most fundamental of staple costs - things have never been worse.

According to the report, for American renters 2013 marked another year with a record-high number of cost burdened households - those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.

It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had "severe cost burdens, paying more than half of income for housing." The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.

... ... ...

And since there is an unprecedented demand for rental units across the US (as the "owning" alternative has become inaccessible), the median asking rent not only soared at an annual rate of over 6%, it has never been higher, with the Census Department recently reporting that the Median US asking just hit an all time high $803.

... ... ...

What is odd is that according to the BLS, rent inflation is far less: at just 3% in the most recent print. One wonders what seasonal adjustments American renters should use to make their monthly paycheck smaller, the way the BLS perceives it. Still, at 3.6% this is the highest annual rent inflation since 2008.

And herein lies the rub: because it is not so much what the real, honest inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately, while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last week, real income is now back at 1989 levels!

And here is the punchline:

"in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."

... ... ...

Furthermore, rent inflation isn't going anywhere - in fact, it will only get worse: "as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter's monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels."


Hype Alert

Housing and healthcare are severely under reported on inflation. How healthcare can triple and not set off flashing red lights on inflation is unreal.

Never One Roach

I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% the past several years despite soaring food, health costs, utinilites, etc.

AGuy

"I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% "

Simple: many still work while collecting SS. Some have part-time jobs (aka Wallmart) others maintained their full time jobs. If you look at the employment chart, Employment for those 55 and older has risen considerably. I believe employment for the 70+ group has also increased.

However, many 65+ have a lower cost of living. (ie no mortgage payments, no college loans, lower healthcare -on Medicare, etc). They can afford to take on one part time job to meet ends since they have SS.

Consuelo

"The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters."

All well & good in the context of officialdom's lies and deceit, but there's just a ~tiny~ bit of clarification needed here...

Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood in reality. You don't 'own' ~anything~ until that last mortgage payment is made - assuming you're not a $cash buyer. And even then, try skipping a property tax payment... And didn't we just find out a few years back, the real meaning of 'home ownership' to the ball & chain tied schlub paying (or not) his mortgage...?

WTF_247

Wage growth has lagged most other costs for at least a decade or more. Inflation and other cost increases are compound functions. The correction will take care of itself. Healthcare and rent are taking more and more of peoples $$ You can only stretch it so far - at some point there is no more money.

Either incomes will rocket up OR housing, including rent, will crash huge. You cannot get renters to pay for something they have no money for. No one is going to rent and choose not to eat or to eat ramen noodles permanently. You cant even get rid of health insurance now or the IRS comes after you - no matter how much it increases each year (estimated 15-20% increase next year). You can get 1 roommate, then 2. But most cities limit the number of renters based upon the number of bedrooms - this only goes so far.

The solution is to stop working or only work a bare minimum - get benefits. Section 8 housing. EBT. Free healthcare. Welfare benefits.

Something is wrong in the US when a working mother making 29k has a better standard of living that someone making 69k per year. If anyone thinks this is not lost on the population as a whole, they would be mistaken. As costs keep going up it is more lucrative to NOT fight anymore. Let the govt pay for it.

novictim

Tyler! "Missing Inflation" is not a mistake or a misunderstanding or an accounting glitch.

Inflation really is low. People have insufficient money.

Do not confuse asset inflation with real inflation. Stock overvaluations and real estate over-evaluations do not create real inflation because prices drop when people sell. Assets are self correcting and non-inflationary.

adr

I shouldn't have to worry about affording somewhere to live with the job I have, yet because of where the job is I have to.

The entire Northeast is fucking insane.

Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400.

I posted a three bedroom ranch that was renting for $3200 a month a little while ago. What do millionaires rent shitty 1950s ranch homes in a hick town?

Then you have property taxes. Up 100% in five years in almost every town even though assessments are actually down. I saw a home listed with a 2009 value of $364k and property taxes of $2800 a year. The current assessed value is $289k but taxes are $5200.

How are you supposed to live?

[Sep 09, 2015] The Fed Must Act Soon Why

"...You're an econ prof, no? In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation."
"...The Fed does absolutely nothing to require that the money it creates pays workers to build anything. Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow."
Sep 08, 2015 | Economist's View

JohnH -> to pgl...

pgl still hasn't demonstrated the iron economic law that says that inflation increases must necessarily be passed along to labor, not stolen by capital.

The precedent of productivity increases stolen by capital over the past 40 years is not encouraging, but there are economists like Janet Yellen who still disingenuously are that productivity increases get passed along! And despite the evidence, pgl chooses to believe her!

mulp said...

But printing more money just forces the exiting money to be spent paying workers slower and slower.

The national economic policy selected by We the People is clearly:

DO NOT PAY WORKERS TO BUILD ANYTHING.

The Fed does absolutely nothing to require that the money it creates pays workers to build anything.

Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow.

We the People understand that paying labor to build new assets will crater the prices of all the inflated asset prices, eg, creating the kind of excess supply we see in fossil fuels which will cause cratering prices, profits turning to losses, and the asset price bubble popping in a big way.

The 21st century has proved to me that I was totally wrong to believe in monetary theory based on the arguments and data of Milton Friedman, and that led me to reexamine the policies of FDR in the face of a populist Congress.

Insight one: deep crisis is required to motivate We the People.
Insight two: the only way to create a better economy is to pay more workers to work more
Insight three: the only way to pay more workers more to work more is for taxes taking money from those who have money which is basically everyone in the upper half who will then demand benefits NOW for all their taxes

Doing the liberal thing to prevent massive poverty in 2008 was the wrong thing. Democrats should have made demands that Bush and Republicans would totally refuse to agree to, so all the money market funds experienced runs and 50% of the depository banks got taken over by the FDIC, and half the businesses in the US stopped paying workers because they could get their cash in their banks because the banks were taken over by the FDIC. And in 2009, Democrats should have kept increasing demands and demanding ever higher tax hikes every time Republicans fought to block Democratic budget bills keeping the economy sinking deeper and deeper making more and more people poor.

The ideal outcome of 2009 would have been corporate tax rates of 50% on business profits of 5% ROIC or lower and 90% on all profits in excess of 5% ROIC, but with 100% deduction for all capital investment excluding buying existing corporations or partnerships. And 90% income tax rates in excess of twice the median income, excluding buying tax exempt infrastructure construction bonds or investing in energy efficiency capital assets.

Or a carbon tax that was set to rise every year until tax revenue was zero with all the tax revenue used to repay Federal debt.

Tax dodging is the biggest incentive to pay workers to build stuff that lasts and that is productive.

The Fed can't do anything but prevent the required crisis to force the required political change.

Or cause the crisis that will create change.

The Fed needs to jack up interest rates to, if nothing else, increase the Federal deficit rapidly by increasing the interest costs.

One of two things would happen: Republicans would win in 2016 and crash the economy by massive spending cuts driving tens of millions into poverty, homelessness, etc.

Or taxes rates would be greatly increased to reduce the deficit but the high tax rates would make hiring workers the cheapest way to cut taxes due and get some benefit.

If I were in the Fed I'd be calling for a 1% hike every year (.25% a quarter) for the next three years.

likbez said...

The USA now reminds me the USSR in a sense that government figures are not using open verifiable methodology. Some thing that those metrics became yet another "number racket". Some measures like inflation and GDP are definitely politicized.

That gives an impetus for sites like http://www.shadowstats.com

Those people who operate using pure government statistical figures without questioning their error range are just another brand of highly paid charlatans. And their papers and articles should be viewed as exercise in "tail wags the dog"

Actually that can be viewed as another dimension of mathiness.

For example government announced that GDP is 3.7%. And everybody jumps in admiration. And nobody asks what was GDI released for this period. Suckers...

Peter K. said in reply to likbez...

"The USA now reminds me the USSR in a sense that...

Republicans are dynamic scoring in order to massage the numbers to that their favored policies look better?

likbez said in reply to Peter K....

My point is the USA now reminds the USSR with its tendency to "beautify" economic data.

Think about all those birth-death adjustments, substitution of U6 with U3 (concepts of "discouraged workers" and "marginally attached workers"), redefining full employment metric (which no longer means 40 hours a week employment), hedonic adjustments/substitutes, "managing" inflation by changing the way it is calculated, price anomalies that bump GDP up, like tremendously overpriced military hardware, etc.

Please don't throw the baby out with the bathwater

Dan Kervick

"Finally, why the huge fear over a little bit of inflation rather than huge fear over higher than necessary unemployment?"

It is a good question, and frankly I have trouble believing that people like Fisher actually *are* worried about a little bit of inflation. Fisher set out his fuller position over a year ago, and I doubt it has changed much:

http://www.dallasfed.org/news/speeches/fisher/2014/fs140716.cfm

He's mainly afraid that the Fed might blow a bubble, and he's afraid that the independence of the political Fed is being compromised by it's being dragged into service to compensate for the lack of fiscal and regulatory action by Congress.

I would suggest that, on the second point at least, everyone should get used to the fact that central bank policy is inevitably a response to politics. That's because central bank policy is always based on general economic conditions, and general economic conditions are always to a substantial extent a function of government policy. So central bank policy has to be responsive to government policy. Tough cookies for all of those believers in an "independent" central bank. There is no such thing as an autonomous "economy" that is independent of political choices.

Other not fully acknowledged factors driving the recent debate are equally political. The Fed is worried that if normalization is delayed, then some time next year the Fed will *have to* reverse course, one way or another. If that takes place after the parties have chosen their nominees and the political race is in full gallop, the Fed will be accused of intervening (in some way, on behalf of someone) in the campaign, and will become a political football. (As far as I'm concerned that would be great, because the US central banking system needs radical reform - but the Fed guys wouldn't like it.)

The other thing they are obviously worried about is a recession. If the US experiences a recession for any reason over the next 18 months, and the Fed is still stuck down close to the zero bound, then it will not be able to exert a substantial stimulative impact - at least not without radical new measures like helicopter money. Again, that's something that wouldn't both me personally, but Independent Fed establishmentarians would freak.

John said...

You're an econ prof, no?

In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation.


[Sep 09, 2015] Accounting for the cost of military hardware in GDP

Warren, September 7, 2015 at 2:33 pm
kirill, September 7, 2015 at 3:43 pm
The professor from Harvard is a total clown. PPP GDP makes more sense than dollar GDP for any country other than the USA when comparing GDP sizes. PPP normalizes price scales for products and services of equal value. US produced overpriced military hardware is not worth every cent compared to cheaper Russian hardware. Nobody who claims the T-14 or even the T-90MS is trash compared to Abrams tanks can be taken seriously. So it simply does not make sense to use dollars to compare Russian military and civilian production which grossly understates the *physical* economy. The one composed of tangible matter and energy and not psychological delusions. Even services can be properly evaluated in terms of matter and energy so there is such a thing as an objective, physical economy.

Another way of countering the Harvard economic voodoo is to think what would happen if some rich Americans decided to buy up all that cheap, 3rd rate GDP of some other country. The prices would shift overnight and they would lose their ability to buy anywhere near the amount they thought the could. So pricing the GDP of states other than the US in dollars is beyond ridiculous. But it serves US propaganda purposes to claim that a 50% ruble devaluation shrank Russia's GDP by 50%.

Oddlots, September 7, 2015 at 4:59 pm
He is presumably a tenured economics professor so you can't expect much. It would be like interrogating the Manchurian Candidate.
Oddlots ,metadata"> September 7, 2015 at 7:07 pm
I do have to ask though, while paging Guy, whether the fact that traders can, on futures and options exchanges dominated by New York, Chicago, London, Hong Kong etc., multiply the actual physical economy in terms the amount of "munny" at stake, whether a focus on the "real" – physical – economy is entirely to the point.

Just as a rough stab at what I mean: this seemingly meaningless false economy has made London the powerhouse of England's economy… It seems utter bullshit to me but it has "worked" somehow since Thatcher's age.

My point is, I wouldn't underestimate the staying power of the wholesale financialization of the economy. What I'd like to really understand is how it's gotten this far and, FWIW, what it will look like when it comes to an end.

That's going to be absolutely wrenching I suspect. Least of all for its advocates with perfect irony.

kirill. September 8, 2015 at 7:36 am
Indeed, money has established economic structures that are meta-stable. Since psychology is one of the main parameters of the economy (humans make choices based on various notions and delusions and this translates into physical processes converting matter and energy), money enables the manipulation of human behaviour including the establishment of perceptions that organize economic activity. Banksters are quite powerful politically, they manipulate the economy in ways that no politician can.

Over the last 20+ years we have seen how financial "technologies" have driven western GDP growth via debt growth. This applies to all levels including the individual consumer who is racking up large debts to pay for all sorts of consumer junk. The housing market is also grossly distorted and people are "buying" million dollar homes on family incomes of $70,000. Their mortgages are nearly all interest and only affordable due to ridiculously low interest rates.

But the racket can't last forever. Growth through cheap credit is a nonsense concept in the long run. Already the national debts of many NATO states are beyond the ability of those states to pay them off. Even though they are "only" around 80% of GDP, there is no austerity program that would preserve the GDP level and the ability to pay. Greece is a nice example of what happens when the confidence in the system breaks. Greece was actually quite normal and attempts to paint it as some sort of special basket case are revisionism. The west is headed for the brick wall of reality. I am afraid that the elites realize this and are engineering WWIII to extricate themselves.

[Sep 03, 2015] Latest from the GDP Now Forecasting Model

"... What I would like to see is an analysis of why GDI reading was recently so much lower then GDP reading. ..."
Economist's View

Interesting divergence between "Blue Chip" consensus and the GDPNow measure from the Atlanta Fed:

GDPNow: The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our new GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release. Recent forecasts for the GDPNow model are available here. More extensive numerical details-including underlying source data, forecasts, and model parameters-are available as a separate spreadsheet.

Latest forecast - September 3, 2015

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.5 percent on September 3, up from 1.3 percent on September 1. ...

Gdpnow-forecast-evolution

... As more monthly source data becomes available, the GDPNow forecast for a particular quarter evolves and generally becomes more accurate. That said, the forecasting error can still be substantial just prior to the "advance" GDP estimate release. It is important to emphasize that the Atlanta Fed GDPNow forecast is a model projection not subject to judgmental adjustments. It is not an official forecast of the Federal Reserve Bank of Atlanta, its president, the Federal Reserve System, or the FOMC.
am said...
How do the Atlanta numbers compare to the actual BEA released numbers, e.g. April-June 2015. I tried to find comparisons on their site but couldn't see any.
likbez said in reply to am...
How BEA released numbers for April-June 2015 compare with reality might be a better question
Matt Young said...
http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm
--------
And this is where the growth is coming from. Look at the variance in growth rates by region over 4 years. Twice the growth rate westt of the rockies then east. There is no Keynesian model or hat trick which will reverse the trend. This is saddleback mountain, no aggregate spending program defeats the bifurcated distribution because it has no way to service the low growth economies at the expense of the high growth.
pgl said...
The Blue Chippers seem to be optimistic! AM raises a good question that should be done more broadly. Do they publish a comparison of the track record for all these forecasters?
likbez said in reply to pgl...
"Do they publish a comparison of the track record for all these forecasters?"

Any attempt to predict fuzzy number by definition is fuzzy. We need to talk about parameters of certain distributions which are represented by single numbers in BEA report.

What I would like to see is an analysis of why GDI reading was recently so much lower then GDP reading.

[Sep 02, 2015] A more accurate measure of economic output by Mark Thoma

"...GDI is identical to GDP in theory. Money used to purchase goods and services becomes someone's income in one way or another. But GDI differs in practice due to the way the national income and product accounts are constructed."
"...The first new measure, called gross domestic output (GDO), is now published by the Bureau of Economic Analysis. It's simply the average of GDP and GDI. Adjusted for inflation, here is how it compares to GDP:"
"..."the simple average -- what we have called GDO -- of the initial estimates historically has been a better gauge of the latest and presumably most accurate estimates of GDP growth than either GDP or GDI individually as well as a more stable predictor of future economic growth. Moreover, using GDO helps at least partially to resolve some recent economic anomalies. As a result, GDO offers a valuable new source of information for households, businesses, researchers, and policymakers seeking to understand economic issues in real time.""
"...However, while both GDO and GDPplus improve on using GDP or GDI alone, neither alternative overcomes all the problems with GDP and GDI, particularly the lag of several months before data on GDP and GDI first become available. In addition, it can be as long as several years before all the important data revisions are completed, and forecasts beyond a quarter or two ahead are unreliable"
CBS News
How well is the U.S. economy doing, and where might it be heading in the future?

To answer these questions, we need a way to assess the total amount of goods and services the economy is producing in a given time period. One measure of this quantity, gross domestic product (GDP) is well known. It estimates the total value of new goods and services produced in the U.S. over a given period, usually a quarter or a year. (Also, the goods must pass through organized markets, so black market activity and goods produced in homes aren't counted.)

However, there's another way to arrive at this estimate of total economic activity: gross domestic income (GDI).

GDI is identical to GDP in theory. Money used to purchase goods and services becomes someone's income in one way or another. But GDI differs in practice due to the way the national income and product accounts are constructed.

Thus, because neither measure is perfect on its own, and the errors in GDP and GDI are largely independent, it should be possible to combine the two measures to improve our estimate of how well the economy is performing in a given time period. That's what two recent strands of research are attempting to do.

The first new measure, called gross domestic output (GDO), is now published by the Bureau of Economic Analysis. It's simply the average of GDP and GDI. Adjusted for inflation, here is how it compares to GDP:

GDO

The graph is from a recent Issue Brief published by the Council of Economic Advisors. It discusses this new measure and notes that

"the simple average -- what we have called GDO -- of the initial estimates historically has been a better gauge of the latest and presumably most accurate estimates of GDP growth than either GDP or GDI individually as well as a more stable predictor of future economic growth. Moreover, using GDO helps at least partially to resolve some recent economic anomalies. As a result, GDO offers a valuable new source of information for households, businesses, researchers, and policymakers seeking to understand economic issues in real time."

The second new measure, called GDPplus, is an optimally weighted combination of GDP and GDI, with weights that are allowed to evolve over time.

This measure, which is available from the Philadelphia Fed, has some technical advantages over the simple average discussed above. However, while both GDO and GDPplus improve on using GDP or GDI alone, neither alternative overcomes all the problems with GDP and GDI, particularly the lag of several months before data on GDP and GDI first become available. In addition, it can be as long as several years before all the important data revisions are completed, and forecasts beyond a quarter or two ahead are unreliable. However, GDPplus, unlike GDO, can be calculated even if only one of GDP or GDI is available.

Thus, the best approach to characterizing how well the economy is performing at a moment in time, and how well it's likely to do in the future, is to use a measure such as GDPplus in combination with other windows into the state of the economy such as the unemployment rate, industrial production, consumption, investment and so on.

[Sep 02, 2015] Links for 09-01-15

"...Measuring value-added is key but when the global value chain is within a multinational - measuring value-added depends on intercompany prices. How do we know they are set at arm's length amounts? We don't. "
"...Ya we don't. It's a game of tax arbitrage "
Economist's View

pgl said...

Call me a nerd but the latest from Tim Taylor is something I need to read more carefully. But let me pull this sentence:

"In studies of global value chains, a standard measure is to calculate what proportion of the value-added from a country's exports are actually from imported inputs."

Measuring value-added is key but when the global value chain is within a multinational - measuring value-added depends on intercompany prices. How do we know they are set at arm's length amounts? We don't.

Reply Tuesday, September 01, 2015 at 01:31 AM

Paine said in reply to pgl...

Ya we don't

It's a game of tax arbitrage

[Aug 30, 2015] The Scary Number Hiding Behind Today's GDP Party

"...Hmm. Which to believe? As the old joke goes: "A person with one clock always knows what time it is. A person with two is never quite sure.""
Aug 30, 2015 | Bloomberg Business

The federal government today released two very different estimates of the U.S. economy's growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.

That's a big discrepancy for two numbers that should theoretically be the same, since they're two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you're happy. If you believe the GDI number, you're thinking the U.S. is skating close to a recession.

The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding-and in this case, that's probably closer to the truth than either number alone.

There is no name for the new hybrid data series, which was described rather prosaically as "the average of real GDP and real GDI." President Obama's Council of Economic Advisers nicknamed it gross domestic output in a July issue brief. Here's what it wrote:

GDP tracks all expenditures on final goods and services produced in the United States, whereas GDI tracks all income received by those who produced that output. Conceptually the two should be equal because every dollar spent on a good or service (in GDP) must flow as income to a household, a firm, or the government (and therefore must show up in GDI). However, the two numbers differ in practice because of measurement error.

[Aug 30, 2015] Under the Hood of U.S. GDP Was Divide Between Growth, Incomes

Aug 30, 2015 | Bloomberg Business

Here's one key takeaway from the Commerce Department's report on gross domestic product Thursday in Washington: Gross domestic income climbed at a 0.6 percent annualized rate, well short of the rebound in growth.

* The increase in GDI last quarter followed a 0.4 percent advance in the first three months of the year, marking the weakest back-to-back gains since mid-2012

* The 3.1 percentage-point gap between GDI and GDP, which climbed at a 3.7 percent rate, was the largest in favor of GDP since the third quarter of 2007

* While GDI and GDP should theoretically match over the long run, they can diverge from quarter to quarter. There has been a debate about which is more accurate, with some Federal Reserve researchers finding incomes give better signals

[Aug 28, 2015] Q2 GDP Revised up to 3.7%

"...Economists are post-industrial shamans whose witch doctor modeling impedes macro economic understanding. The precision of models is ersatz, more or less inversely proportional to its real world relevance. The delusion of being a scientist is critical to their professional self-respect. "
"...You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake."
Aug 28, 2015 | Economist's View

anon

The Fed wants to raise interest rates:
  • - in the hope of preserving there institutional economic significance,
  • - out of a sense of loyalty to the Fed's history of financial influence using interest rates,
  • - because using rates to influence economic events increases their professional comfort,
  • - and because their economic grad school training was to fear wage push inflation above all else (they seem to believe that if inflation exceeds 2% it is a harbinger of hyper inflation).

Economists are post-industrial shamans whose witch doctor modeling impedes macro economic understanding. The precision of models is ersatz, more or less inversely proportional to its real world relevance. The delusion of being a scientist is critical to their professional self-respect.

Dan Kervick -> lower middle class...

A 3.7% quarter with several hands tied behind our backs by a don-nothing government. Think about what we could do if we were really trying.

pgl -> Dan Kervick...

YEA! Let's build that Mexican wall. Let's wage war on China. Lord - the stupidity here is multiplying!

Dan Kervick -> pgl...

This is an area in which you seem to be persistently incapable of avoiding lies.

You know very well that are a large number of ambitious long-term projects the US could do that are non-military, have nothing to do with immigration and could boost output tremendously.

You're becoming part of the LPTS crew: "liberal pundits terrified of socialism."

That's why Brad DeLong has an embargo on any talk about Bernie Sanders and his ideas.

That's why Paul Krugman is also avoiding Sanders like the plague and using daily red meet partisan servings to keep Democrats' attention riveted on the foibles of the Republicans.

That's why Brendan Nyhan has yet another column warning us all about the dangers of "Green Lanternism".

You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake.

40% of this country has household income of under $40,000 per year. If we remove the plutocratic capitalist stranglehold on this economy, use government to more efficiently distribute and invest our national wealth, and demote private enterprise to its proper subordinate place, we could double that rapidly and drive a wave of high-growth social transformation with all of the liberated economic energy.

This is going to happen. Take your pick: we're either going to get the somewhat fascistic and racist Trump version on strong government or democratic socialist version. The Ivy League twits hanging on for dear life to their established networks, revolving doors, tit-for-tatting, sinecures and don't-rock-the-boat regime of stagnant managerialism are going to butts handed to them by history.

pgl -> Dan Kervick...

Blah, blah, blah. I guess we could employ more economists at the BEA to do what they are already doing at Census.

Dan Kervick -> pgl...

The Census doesn't and can't combine income distribution numbers with growth numbers on a monthly and quarterly basis. The BEA could collect this data, but doesn't, because it is part of their mission to pretend class conflict doesn't exist.

The top quintile in the US pulls down about 50% percent of the income. That means we could get 3.7% annualized growth if their income grew by 6% while everybody else's income grew by less than 1/2 a percent.

Is that what's happening? Inquiring minds want to know. It seems like a natural mission for the BEA to track this. But they don't.

pgl -> Dan Kervick...

You have no clue what these people do or the task you are whining about. With all you incessant babbling and whining - your keyboard is likely ready to just rot away.

Me? I'm headed down to the Starbucks to whine that they don't make tacos. Duh.

Dan Kervick -> pgl...

I know what they do, and I know what they don't do. Their mission should be expanded.

likbez -> Dan Kervick...

Dan,

I think you are mistaken about "a natural mission for the BEA to track this". Our elected officials and Wall Street executives all have a vested interest in keeping the perception of a robust economy alive. The economy growth numbers and the employment data announced are critical to this perception, but a thorough analysis of the data suggests something quite different that what we are told.

Statistics now became more and more "number racket" performed, like in the USSR, in the interest of the powers that be.

  • Think about "substitution" games in measuring consumer inflation.
  • Think about "Birth/Death adjustment" in employment data.
  • Think about tricks they play with GDP measurement.

The net result of this tricks is that the error margin of government statistics is pretty high. And nobody in economic profession is taking into account those error margins.

So in no way we can accept this 3.7% annualized growth figure. This is a fuzzy number, a distribution from probably 2.7% to 3.7%. Only upper bound is reported. And if you delve into the methodology deeper this range might be even wider. What is actually the assumption of quarterly inflation in the USA used in calculation of this number?

Which is another factor that makes neoliberal economics a pseudoscience, a branch of Lysenkoism.

JohnH -> Dan Kervick...

This is very revealing...nobody provides regular statistics on distribution. That lack of interest makes it blatantly obvious that policy makers only care about the top number--GDP--and are totally uninterested in knowing whether most Americans are prospering or not.

There is one source that updates Census data on a monthly basis. It shows that real median household income is still 3.8% below where it was in 2008 or in 2001. In fact, it's back where it was in the 1980s.

Of course, the 'recovery' has trickled down a bit, just as you would expect from trickle down monetary policy. Real median household incomes are no longer 9.6% below where they were in 2008...they're now only 3.8% below.
http://www.advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php

Meanwhile, Saez and Montecino have pointed out that the 1% got 58% of the gains from the 'recovery,' while the 99% got 42%.

Of course, pgl doesn't even care enough about this to know where the data is...and, apparently, most 'liberal' economists are just as indifferent to distribution as he is.

Dan Kervick -> JohnH...

If it weren't for Piketty and Saez, we'd still be fumbling around in the dark on income and wealth distribution.

JohnH -> JohnH...

There's more here: real median household income by quintile 1967-2013
http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php

It shows the dramatic the separation between the top quintile and the bottom 80% during the Clinton years. Separation was even greater for the top 5%.

Yet the only thing that most economists ever notice is GDP growth...

pgl -> JohnH...

"Yet the only thing that most economists ever notice is GDP growth".

There you go again. Clueless as can be and lying your ass off.

likbez -> pgl...

And what you actually know about methodology of calculation of this GDP number. Inquiring minds want to know.

Correct calculation of nominal GDP depends on correct calculation of inflation, which is the most politicized of economic metrics and as such subject to tremendous level of manipulation.

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

=== Start of quote ====
The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

JohnH -> JohnH...

Another look at the ineffectiveness of trickle down monetary policy: all but the top decile have suffered decreases in wages and compensation since 2007.
http://www.epi.org/publication/pay-is-stagnant-for-vast-majority-even-when-you-include-benefits/

[Jul 29, 2015] Using Math to Obfuscate - Observations from Finance

Notable quotes:
"... then from Romer's assumptions the rival inputs cannot be earning their marginal product. ..."
"... The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ... ..."
"... Four-fifths of the "Economy" is a Complete Waste of Time ..."
"... I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output. ..."
"... The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output. ..."
"... "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness." ..."
"... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models." ..."
"... why do economies grow vulnerable over time ..."
"... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. ..."
"... Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment ..."
economistsview.typepad.com
More from Paul Romer on "mathiness" -- this time the use of math in finance to obfuscate communication with regulators:
Using Math to Obfuscate - Observations from Finance: The usual narrative suggests that the new mathematical tools of modern finance were like the wings that Daedalus gave Icarus. The people who put these tools to work soared too high and crashed.

In two posts, here and here, Tim Johnson notes that two government investigations (one in the UK, the other in the US) tell a different tale. People in finance used math to hide what they were doing.

One of the premises I used to take for granted was that an argument presented using math would be more precise than the corresponding argument presented using words. Under this model, words from natural language are more flexible than math. They let us refer to concepts we do not yet fully understand. They are like rough prototypes. Then as our understanding grows, we use math to give words more precise definitions and meanings. ...

I assumed that because I was trying to use math to reason more precisely and to communicate more clearly, everyone would use it the same way. I knew that math, like words, could be used to confuse a reader, but I assumed that all of us who used math operated in a reputational equilibrium where obfuscating would be costly. I expected that in this equilibrium, we would see only the use of math to clarify and lend precision.

Unfortunately, I was wrong even about the equilibrium in the academic world, where mathiness is in fact used to obfuscate. In the world of for-profit finance, the return to obfuscation in communication with regulators is much higher, so there is every reason to expect that mathiness would be used liberally, particularly in mandated disclosures. ...

We should expect that there will be mistakes in math, just as there are mistakes in computer code. We should also expect some inaccuracies in the verbal claims about what the math says. A small number of errors of either type should not be a cause for alarm, particularly if the math is presented transparently so that readers can check the math itself and check whether it aligns with the words. In contrast, either opaque math or ambiguous verbal statements about the math should be grounds for suspicion. ...

Mathiness–exposition characterized by a systematic divergence between what the words say and what the math implies–should be rejected outright.

Posted by Mark Thoma on Wednesday, July 29, 2015 at 10:52 AM in Economics, Financial System, Methodology | Permalink Comments (2)

[Jul 20, 2015] The Rivals (Samuelson and Friedman)
Jul 19, 2015 | Economist's View

pete said...

I always loved Boulding's somewhat critical review of Samuelson, discussing the limits of the mathematicization of economic theory. Of course Samuelson was the tip of the iceberg, and since then many overconfident economic mathematicians have led to very serious financial problems. I had one stats professor who called a complex theory on the blackboard "graffiti."

http://www.jstor.org/stable/1825768?seq=1#page_scan_tab_contents

pgl -> pete...
Samuelson did not do math for math's sake. He figured out first what the real world issue was and then used math to help explain his insights.
likbez -> pgl...
You need to distinguish "math" from "mathematical masturbation", or as they are now more politically correctly called "mathiness".

Many economic works that use differential equations belong to the latter category ;-). A lot of pitiful clowns pretending to be mathematicians do not even bother to understand what is the precision and error bounds of the input data. As in "garbage in, garbage out".

This is probably a unique case when mathematic equations are used to support particular political ideology. Support via "scietification" (as in Church of Scientology) of essentially political statements. Especially about unemployment and poverty.

anne -> anne...

All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.

[ Keynesian ideas have worked? Influential among policy makers in general or not, Keynesian ideas have worked. ]

pgl -> anne...

Keynesian theory explains what happened. But what happened was the our policy makers failed to do the right thing. Had they listened to Keynes - the recoveries would have been much faster.

likbez -> pgl...

"Had they listened to Keynes - the recoveries would have been much faster."

This was impossible. There is such thing as "Intellectual capture". As Keyes noted

"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."

[Jun 15, 2015] What Assumptions Matter for Growth Theory
Jun 15, 2015 | Economist's View
Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:
What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.
There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.
Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.
  • Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.
  • Rival inputs are things that can only be used by one person or firm at a time. Think of nails.
  • The income earned by both rival and non-rival inputs has to add up to total output.
Okay, given all that setup, here are three statements that could be true.
  1. Output is constant returns to scale in rival inputs
  2. Non-rival inputs receive some portion of output
  3. Rival inputs receive output equal to their marginal product
Pick two.
Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.

Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.

Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...
The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...

[There's a lot more in the full post. Also, Romer comments on Vollrath here.]

Paine

Excellent

Lots of conclusions are per determined by simple assumptions like constant returns to scale

If by scale we mean replication of the existing production system on a larger scale

Where say we triple every plant and highway etc

The model nicely captures the reality of a static production system
Where all factors are expandable even if at a cost

This is a very narrow notion of scale effects

If for example markets for oust expand and a different technique is optimal
Then there's a dynamic transition
Where residuals emerge.

anne -> Paine ...

I assume this is the reference which the writer is too inconsiderate to mention:

http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html

June 13, 2015

Are ideas really non-rival?
By Nick Rowe

Paine -> anne...

Rowe thinks he is making a great joke

But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct

No matter how carefully these atoms are defined they remain figments

That one can conjure like epicycles

Example

Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us

Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero

To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...

Paine -> Paine ...

My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible

Nothing fits this description exactly. And almost is as bad as not at all.

Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not

anne -> Paine ...

All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors

[ I understand and am pleased. ]

Sandwichman said...

Four-fifths of the "Economy" is a Complete Waste of Time

"There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"

"Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"

Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.

"As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"

Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

Name one.

Carry on, growth theorists.


anne -> Sandwichman...

http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html

June 6, 2015

The Chimerical Analogies of Growth and Distribution


http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.html

June 14, 2015

Four-fifths of the "Economy" is a Complete Waste of Time

-- Sandwichman

Sandwichman -> Sandwichman...

1. "growth is a concept whose proper domicile is the study of organic units..."

2. "The belief that society is an organism is an old but fanciful notion."

3. ?

4. Growth!

Sandwichman -> anne...

"the meaning of per capita growth in China over these last 38 years of 8.6% yearly"

It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.

Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.

Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.

Sandwichman -> anne...

A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.

When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.

Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.

anne -> Sandwichman...

Can't we just forget about the confounded aggregate and get on with promoting the good?

[ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]

anne -> Sandwichman...

Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?

Paine -> anne...

We need a welfare index. And that greatly increases the degree of difficulty over a simple output index

Sandwichman -> Paine ...

"If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.

http://www.theatlantic.com/past/politics/ecbig/gdp.htm

And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."

Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":

"Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."

I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.

The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.

anne -> Sandwichman...

http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html

June 14, 2015

Some Kind of an Index -- No Normative Connotations

-- Sandwichman

Julio -> Sandwichman...

A question for you folks in this subthread:

"In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."

Proposition: That myth underlies our world.

Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.

Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?

Julio -> Sandwichman...

Aggregate is not the same as average.

The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.

But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?

We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.

A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.

Sandwichman -> Julio...

"is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"

No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.

The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.

A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.

anne -> Sandwichman...

The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....

[ Agreed. ]

anne -> Sandwichman...

The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.

Sandwichman -> anne...

anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...

The Case of the Missing Minsky by Paul Krugman
"...On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models."

NYTimes.com

Gavyn Davis has a good summary of the recent IMF conference on rethinking macro; Mark Thoma has further thoughts. Thoma in particular is disappointed that there hasn't been more of a change, decrying

the arrogance that asserts that we have little to learn about theory or policy from the economists who wrote during and after the Great Depression.

Maybe surprisingly, I'm a bit more upbeat than either. Of course there are economists, and whole departments, that have learned nothing, and remain wholly dominated by mathiness. But it seems to be that economists have done OK on two of the big three questions raised by the economic crisis. What are these three questions? I'm glad you asked.

As I see it, it makes sense to think of what happened in terms of three phases.

The questions then are how and why each of these things can/did happen. I think of these as the Minsky question - why do economies grow vulnerable over time ; the Bagehot question - why does all hell break loose now and then; and the Keynes question - how economies can stay depressed, and how such depressed economies work.

On the Keynes question, it's true that we haven't had a radical change in thinking, but that's mainly because the old thinking still works pretty well. That is, the answer for people asking who would be the new Keynes turns out to be that Keynes is the new Keynes. Or maybe that's Hicks - anyway, IS-LMish analysis worked well, and the economists who made fools of themselves were those who rejected the time-tested approaches.

What is new is that we have had a flowering of empirical work, and have much more econometric evidence on monetary and especially fiscal policy, price behavior, and more than we used to. Look, for example, at Nakamura/Steinsson's survey, or at the Blanchard work on multipliers in the euro area. So this is a happy story: the existing framework worked fairly well, and is now buttressed by a lot of really good empirical evidence.

On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. But it wasn't very hard to fix these problems, or at least apply workable patches. Once you realized that repo was the new bank deposits, the basic crisis framework was already there; and there was already enough existing analysis of balance-sheet constraints and all that to make creation of a somewhat messy, inelegant, but usable set of models quite easy.

And here too we have seen a flowering of empirical work, e.g. Mian and Sufi on household debt.

Where we have not, as far as I can tell, made much progress is the Minsky question. Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy? I have views, but I have to admit that there isn't a lot of either fresh thinking or hard evidence here.

Why is Minsky still mostly missing? Partly because asking how we got here may be less urgent than the question of what we do now. But also, I'd guess, because it's hard. Bubbles, excessive leverage, and all that probably have a lot to do with the limits of rationality, and behavioral economics doesn't provide anything like as much guidance as it should.

Still, I'm relatively positive in my assessment of the state of macroeconomics. Against mathiness and political ideology, the gods themselves contend in vain, but that's not a problem with the models


kbaa, The Irate Plutokrat

It is good to see Krugman write in opposition to 'mathiness', economists' misuse of mathematics to justify their pet theories. And his suggestion that 'behavioral economics doesn't provide anything like as much guidance as it should' is probably as close to an admission as we are ever likely to get from an academic economist that it's human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.

Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.

NB For those who have never studied Calculus, "Euler" is pronounced "oiler", but there's no connection with the price of oil or any other commodity, and don't let any academic economist try to tell you otherwise.

Book Review "Keynes The Return of the Master"
WSJ.com

Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.

This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."

Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories-I have conducted such research myself-tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.

Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.

[Jun 15, 2015] What Assumptions Matter for Growth Theory

Jun 15, 2015 | Economist's View
Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:
What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.

There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.

Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.

  • Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.
  • Rival inputs are things that can only be used by one person or firm at a time. Think of nails.
  • The income earned by both rival and non-rival inputs has to add up to total output.

Okay, given all that setup, here are three statements that could be true.

  1. Output is constant returns to scale in rival inputs
  2. Non-rival inputs receive some portion of output
  3. Rival inputs receive output equal to their marginal product
Pick two.

Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.

Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.

Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...

The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...

[There's a lot more in the full post. Also, Romer comments on Vollrath here.]

Paine

Excellent !

Lots of conclusions are per determined by simple assumptions like constant returns to scale. If by scale we mean replication of the existing production system on a larger scale

Where say we triple every plant and highway etc

The model nicely captures the reality of a static production system
Where all factors are expandable even if at a cost

This is a very narrow notion of scale effects

If for example markets for oust expand and a different technique is optimal
Then there's a dynamic transition
Where residuals emerge.

anne -> Paine ...

I assume this is the reference which the writer is too inconsiderate to mention:

http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html

June 13, 2015

Are ideas really non-rival?
By Nick Rowe

Paine -> anne...

Rowe thinks he is making a great joke

But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct

No matter how carefully these atoms are defined they remain figments

That one can conjure like epicycles

Example

Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us

Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero

To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...

Paine -> Paine ...

My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible

Nothing fits this description exactly. And almost is as bad as not at all.

Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not

anne -> Paine ...

All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors

[ I understand and am pleased. ]

Sandwichman said...

Four-fifths of the "Economy" is a Complete Waste of Time

"There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"

"Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"

Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.

"As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"

Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

Name one.

Carry on, growth theorists.

anne -> Sandwichman...

http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html

June 6, 2015

The Chimerical Analogies of Growth and Distribution


http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.html

June 14, 2015

Four-fifths of the "Economy" is a Complete Waste of Time

-- Sandwichman

Sandwichman -> Sandwichman...

1. "growth is a concept whose proper domicile is the study of organic units..."

2. "The belief that society is an organism is an old but fanciful notion."

3. ?

4. Growth!

Sandwichman -> anne...

"the meaning of per capita growth in China over these last 38 years of 8.6% yearly"

It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.

Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.

Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.

Sandwichman -> anne...

A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.

When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.

Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.

anne -> Sandwichman...

Can't we just forget about the confounded aggregate and get on with promoting the good?

[ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]

anne -> Sandwichman...

Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?

Paine -> anne...

We need a welfare index. And that greatly increases the degree of difficulty over a simple output index

Sandwichman -> Paine ...

"If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.

http://www.theatlantic.com/past/politics/ecbig/gdp.htm

And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."

Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":

"Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."

I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.

The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.

anne -> Sandwichman...

http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html

June 14, 2015

Some Kind of an Index -- No Normative Connotations

-- Sandwichman

Julio -> Sandwichman...

A question for you folks in this subthread:

"In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."

Proposition: That myth underlies our world.

Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.

Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?

Julio -> Sandwichman...

Aggregate is not the same as average.

The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.

But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?

We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.

A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.

Sandwichman -> Julio...

"is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"

No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.

The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.

A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.

anne -> Sandwichman...

The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....

[ Agreed. ]

anne -> Sandwichman...

The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.

Sandwichman -> anne...

anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...

[Mar 27, 2015] Microeconomic Origins of Macroeconomic Tail Risks

Economist's View
Microfoundations from Acemogl, Oxdaglar, and Tahbaz-salehi:
Microeconomic origins of macroeconomic tail risks, by Daron Acemoglu, Asuman Ozdaglar, and Alireza Tahbaz-Salehi: Understanding large economic downturns is one of macroeconomics' central goals. This column argues that imbalances in input-output linkages can interact with firm-level shocks to produce output fluctuations that are much larger than the underlying shocks. The result can be large cycles arising from small, firm-level shocks. It is thus important to study the determinants of large economic downturns separately. Macroeconomic tail risks may vary significantly even across economies that exhibit otherwise identical behavior for moderate deviations.

Most empirical studies in macroeconomics approximate the deviations of aggregate economic variables (such as the GDP) from their trends with a normal distribution. Besides analytical convenience, such an approximation has been relatively successful in capturing some of the more salient features of the behavior of aggregate variables in the US and other OECD countries.

Macroeconomic tail risks

A number of recent studies (see Fagiolo et al. 2008), however, have documented that the distributions of GDP growth rate in the US and many OECD countries do not follow the normal, or bell-shaped distribution. Large negative or positive growth rates are more common than the normal distribution would suggest. That is to say, the distributions exhibit significantly heavier 'tails' relative to that of the normal distribution. Using the normal distribution thus severely underpredicts the frequency of large economic downturns.

This divergence can be seen clearly in Figure 1. Panel (a) depicts the quantile-quantile plot of post-war US GDP growth rate (1947:QI to 2013:QIII) versus the normal distribution after removing the top and bottom 5% of data points. The close correspondence between this dataset and the normal distribution, shown as the dashed red line, suggests that once large deviations are excluded, the normal distribution is indeed a good candidate for approximating GDP fluctuations. Panel (b) shows the same quantile-quantile plot for the entire US post-war sample. It is easy to notice that this graph exhibits sizeable and systematic deviations from the normal line at both ends. Together, these plots suggest that even though the normal distribution does a fairly good job in approximating the nature of fluctuations during most of the sample, it severely underestimates the most consequential fact about business cycle fluctuations, namely, the frequency of large economic contractions.

Figure 1. The quantile-quantile plots of the post-war US GDP growth rate (1947:QI to 2013:QIII) vs. the standard normal distribution (dashed red line)

Acemoglu fig1 24 marNote: The horizontal axis shows quantiles of the standard normal distribution; the vertical axis shows quantiles of the sample data.

Input-output linkages, micro shocks, and macro risks

In recent work (Acemoglu et al. 2014), we have argued that input-output linkages between different firms and sectors within the economy can play a first-order role in determining the depth and frequency of large economic downturns. Building on an earlier framework by Acemoglu et al. (2012), we show that if all firms take roughly symmetric roles as input-suppliers to one another (in what we call a 'balanced' economy), not only GDP fluctuations are normally distributed, but also large economic downturns are extremely unlikely. In other words, absent any amplification mechanisms or aggregate shocks, microeconomic firm-level shocks cannot result in macroeconomic tail risks. More interestingly, this result holds regardless of how these firm-level microeconomic shocks are distributed.

Our subsequent analyses, however, establish that the irrelevance of microeconomic shocks for generating macroeconomic tail risks would no longer hold if the economy is 'unbalanced', in the sense that some firms play a much more important role as input-suppliers than others. More specifically, we argue that:

The propagation of microeconomic shocks through input-output linkages can significantly increase the likelihood of large economic downturns.

The implications of our theoretical results can be summarized as follows:

First, the frequency of large GDP contractions is highly sensitive to the nature of microeconomic shocks.

In particular, in an unbalanced economy, micro shocks with slightly thicker tails can lead to a significant increase in the likelihood of large economic downturns. This suggests that unbalanced input-output linkages can lead to the build-up of tail risks in the economy.

Second, depending on the distribution of microeconomic shocks, the economy may exhibit significant macroeconomic tail risks even though aggregate fluctuations away from the tails can be well-approximated by a normal distribution.

This outcome is consistent with the pattern of US post-war GDP fluctuations documented in Figure 1.

This observation underscores the importance of studying the determinants of large recessions, as such macroeconomic tail risks may vary significantly even across economies that exhibit otherwise identical behaviour for moderate deviations.

Finally, there is a trade-off between the normality of micro-level shocks and imbalances in the input-output linkages.

An economy with unbalanced input-output linkages subject to normal microeconomic shocks exhibits deep recessions as frequently as a balanced economy subject to heavy-tailed shocks.

Solving the 'small shocks, large cycles puzzle'

In this sense, our results provide a novel solution to what Bernanke et al. (1996) refer to as the 'small shocks, large cycles puzzle' by arguing that the interaction between the underlying input-output structure of the economy and the shape of the distribution of microeconomic shocks is of first-order importance in determining the nature of aggregate fluctuations.

Conclusion

Understanding the underlying causes of large economic downturns such as the Great Depression has been one of the central questions in macroeconomics. Our results suggest that the frequency and depth of such downturns may depend on the interaction between microeconomic firm-level shocks and the nature of input-output linkages across different firms. This is due to the fact that the propagation of shocks over input-output linkages can lead to the concentration of tail risks in the economy. This observation highlights the importance of separately studying the determinants of large economic downturns, as such macroeconomic tail risks may vary significantly even across economies that exhibit otherwise identical behaviour for moderate deviations.

References

Acemoglu, D, V M Carvalho, A Ozdaglar, and Al Tahbaz-Salehi (2012), "The network origins of aggregate fluctuations", Econometrica, 80, 1977–2016.

Acemoglu, D, A Ozdaglar, and A Tahbaz-Salehi (2014), "Microeconomic origins of macroeconomic tail risks", NBER Working Paper No. 20865.

Bernanke, B, M Gertler, and S Gilchrist (1996), "The financial accelerator and the flight to quality", The Review of Economics and Statistics, 78, 1–15.

Fagiolo, G, M Napoletano, and A Roventini (2008), "Are output growth-rate distributions fat-tailed? Some evidence from OECD countries", Journal of Applied Econometrics, 23, 639–669.

anne

Understanding large economic downturns is one of macroeconomics' central goals. This column argues that imbalances in input-output linkages can interact with firm-level shocks to produce output fluctuations that are much larger than the underlying shocks. The result can be large cycles arising from small, firm-level shocks. It is thus important to study the determinants of large economic downturns separately. Macroeconomic tail risks may vary significantly even across economies that exhibit otherwise identical behavior for moderate deviations....

-- Acemogl, Oxdaglar, and Tahbaz-salehi

[ While I may well not understand this, from what I think I understand I have no idea how this would account for the Depression or the past recession. Precisely how did small firm-level shocks create the Depression or the past recession? What shocks to what firms, when and where was there any regulatory response? ]

djb said in reply to anne...

At least when Keynes described a business cycle he aimed to intuitively understand what the causes were

Here i cant find it

are they saying that societies controlled by monopolies are subject more frequent and severe cycles?

New Deal democrat said...

"are they saying that societies controlled by monopolies are subject more frequen and severe cycles?"

Yes, basically that's it. Human decision-makers are fallible. In an oligopoly or monopoly, all it takes is one bad decision by one CEO to send a shock wave through the entire sector. Contrast with 100 CEO's of smaller companies in the same sector. Any one or several poor decisions are unlikely to cause a big disruption.

Or, put another way, the study demonstrates that "the bigger they are, the harder they fall."

[Jun 24, 2013] Time to ditch GDP by Martin Hutchinson

Jun 11, 2013 | Asia Times

Much commentary this year has been devoted to the dramatically negative effect the "sequester" spending cuts would have on US gross domestic product. In Japan, one leg of Prime Minister Shinzo Abe's three-part plan to revive the economy is additional state spending, predicted to increase gross domestic product (GDP) in spite of its damaging effects on Japan's huge debt and budget deficit.

Yet in both cases, the economic effects predicted are statistical artifacts, not real changes. GDP, which includes government spending at cost, unlike its treatment of all other economic activity, is a deeply flawed statistic, rigged up by Keynesians to make Big Government look better.

Several economic statistics have similar flaws. Consumer Price Indexes, for example, no longer include house prices or any realistic proxy therefore, allowing inflation watchers to miss price bubbles like that of 2002-06 in the US, which if statistics had been collected properly would have led to far higher interest rates and a resultant deflation of the housing bubble. Similarly, the 1996 "hedonic pricing" adjustment, which over-compensates for quality improvements in the tech sector by pretending that each Moore's Law doubling in chip capacity produces an actual doubling in value, has suppressed reported CPI inflation since it was introduced.

While the elimination of asset prices from the CPI and the suppression of tech sector inflation had substantial academic support when they were introduced - in economics, you can always find academics to support anything - their true driver was political. Politicians like lower interest rates, which asset-bubble-driven CPI increases would prevent, and want the appearance of good economic stewardship produced by lower reported CPI figures.

It also doesn't hurt that lower reported CPI figures greatly reduce the actuarial future cost of social security and other benefits politicians have promised the electorate. Voters will never notice a little chiseling on the CPI figures by which their benefits are adjusted, whereas they will certainly notice the tax increases that would be necessary to fund them properly.

The current proposal to adjust benefits by "chained CPI" figures, which reflect a re-balancing of consumption on price movements that bears no relation to consumers' actual behavior, is another step in this direction that will remove another tiny slice each year from social security recipients' welfare. Truly, the proponents of these CPI changes should go into the salami business.

As with the CPI, the designers of the GDP statistic (and its Gross National Product brother, which bases output on ownership, rather than physical location) had their own political agenda. Simon Kuznets, who unveiled the GNP statistic to the US Senate in 1934 (and published it in the National Bureau of Economic Research Bulletin of June 7, 1934) was a lifelong Keynesian who was trying to put an economically sound foundation under the New Deal's intellectually incoherent policies. Since he regarded government activity as a positive good that should be expanded in downturns, he included the cost of government directly in GNP/GDP at full cost -- thus automatically producing an increase in output when the size of government increases.

Kuznets should not be blamed inordinately. To get GDP, he went through "national income paid out" and then adjusted for business profits. That's not the way we'd calculate the statistic today, and it makes the inclusion of government at cost more understandable - he simply assumed government made neither a profit nor a loss.

In reality, on his methodology, government makes a huge loss, because the market value of its outputs is greatly exceeded by the cost of its inputs. You can see the effect of this in the US Postal Service, which some want to privatize, as with a US$4 billion privatization of the Belgian postal service, planned for this month.

However if you look at the Post Office's financials, privatization is obviously impossible, because the entity has negative value, with a net worth of minus $35 billion and an operating loss of $16 billion in 2012. By GDP accounting, if the USPS is included in government its output is deemed to be its $81 billion of expenses, while considered as a private sector entity its output is only $65 billion.

From a national accounting perspective, the US Postal Service is one of the easiest bits of government to assess: its output is sold at market prices, just like a private corporation, albeit a horrendously unprofitable one. Other parts of government are much more difficult. The State Department and Department of Defense have no measurable outputs at all and, in the case of defense, vast inputs, yet few would argue that the government could function without them, at least in some form.

Conversely, the Environmental Protection Agency, issuing regulations covering effectively the whole of US economic activity, imposes a vast hidden cost through regulation that is nowhere accounted for in GDP. That's the pernicious effect of regulation: if the US improved automobile fuel efficiency through a higher gasoline tax, the costs would be out there for all to see, whereas by imposing the Corporate Average Fuel Economy Standards the EPA is able to impose far higher costs on the economy that are completely invisible directly.

Some of those costs are visible indirectly, in the higher costs and lower profits of US automobile manufacturers; others, such as the additional lives lost of inadequately protected passengers in high-gas-mileage cars involved in automobile accidents, are completely invisible. (Lives would also be lost if a higher gas tax caused manufacturers to make the automobile fleet flimsier, but in that case consumers would have the option of buying a steel-reinforced gas guzzler and paying the extra fuel cost, whereas under CAFE regulation they don't.)

There are thus two approaches to reforming GDP. One would be to take each division of government and attempt to assess the value of its output, which is negative in the case of the EPA, parts of the Commerce and Agriculture Departments (protectionism) and possibly the Education Department (dumbing down schools).

That sounds like a fun intellectual exercise, but it would involve endless political judgments about which the two sides could not possibly agree. In the extraordinary US political system, that could perhaps be managed - you could have two different party groups in the Congressional Budget Office, producing Republican and Democrat GDP estimates. The Republican estimate would take a free market approach, assigning a negative value to large parts of government. Conversely the Democrat estimate could go further than current GDP accounting, and include all kinds of hedonic adjustments, as in Joseph Stiglitz's "well-being" proposal, supported by France's ex-president Nicolas Sarkozy in 2009. However every time control of congress changed, the "official" estimates of GDP would be revolutionized, altering the entire economic history of the preceding decade - and causing the utmost confusion in the markets.

A better alternative therefore would be to ignore government altogether, and calculate a Gross Private Product, the national output of the private sector, from which almost all government costs must in any case be borne. To a first order of accuracy, this can be done already from the Bureau of Economic Analysis' published data - you simply subtract line 21 (government consumption expenditures and gross investment) from GDP (line 1) and the result is a decent ballpark estimate of GPP.

Using GPP, US economic history takes a different shape, most notably around World War II. Economic growth becomes more sluggish in 1933-38 than the conventional record shows, (still with a downturn in 1937-38) then in 1939-40 (after the November 1938 mid-term congressional elections had swung heavily to a bipartisan conservative consensus and stopped the New Deal in its tracks) there was a rapid recovery that brought back the output levels of 1929. Later, instead of soaring in World War II as did GDP, GPP was squeezed during the war, before enjoying an astonishing recovery in 1946 that doubled real GPP and finally pushed prosperity beyond 1920s levels.

Paul Krugman proposed in 2011 that the US would benefit from an alien invasion, since the military expenditure on death rays and so forth to fight the aliens would stimulate the economy. Indeed, later he even proposed that the government stage a fake alien invasion to achieve the same effect. His proposal demonstrates nicely the fallacy of GDP accounting.

Under GPP, the additional government waste on death rays would be ignored, while GPP would decline as the private sector was squeezed to provide the resources for the extra military spending. Krugman's proposal also illustrates nicely the intellectual (and incipient financial) bankruptcy of Keynesianism; it's obvious nonsense if you do the accounting properly.

GPP accounting also illustrates the true effect of government cutbacks in the last six months. First quarter GPP, boosted by the sequester and defense cuts, both of which allowed more room for the private sector to thrive, grew at 4.1% compared with the anemic 2.4% growth in GDP. It's not surprising the stock market has taken off.

When leftists whine that cutbacks will destroy growth or cheer that stimulus spending will increase it, they can be confident of their forecast - because the GDP statistic is constructed to make it true. The spending stimulus of 2009-10, which peaked in the fourth quarter of 2009, delayed the recovery of GPP by six months, into 2010.

Moving from GDP to GPP would kill off many damaging economic policies, as well as giving us a much better picture of where the economy is really going. It's a slam-dunk.

(Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country. Gross National Product (GNP) is a measure of a country's economic performance, or what its citizens produced (ie, goods and services) and whether they produced these items within its borders.)

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.

(Republished with permission from PrudentBear.com. Copyright 2005-13 David W Tice & Associates.)

[Apr 9, 2012] High Noon The Greenback Goes For Its Gun in the Fight Of Its Life

April 9, 2012 | The Kremlin Stooge

kirill

Nice article. I would repeat a point I made in a previous thread that the GDP of the USA is a fiction. Using the methodology to define the CPI pre-1990, the current and for most of the last 20 years CPI in the US is understated by a factor of two. This is a big deal since it means that the GDP growth in the range of 3% was more like zero and periods of no-growth were actual contractions. The CPI is only one component of the GDP deflator but there is indication that producer price increases have been quite high too.

The mass migration of US factory jobs to China and all the "right-sizing" and "down-sizing" was not for free and it looks like the US GDP has been stagnating for the last 20 years. I originally bought into the line that there were productivity gains, but there were also major wage reductions (all those lost manufacturing jobs were replaced with low pay service sector jobs.) All the talk about the new electronic economy was a crock too since those jobs went to China and India as well. The only source of growth that I can see is population increase in the US which is significant at around 2%.

So I would say the US GDP is closer to 10 trillion and not the 15 trillion that is being trumpeted in the media. China is a bigger economy now than the USA, except in per capita terms. The estimate of 2050 for the BRICS to overtake the west is based on overly rosy figures for the western GDP. There are too many inflation measurement shenanigans to take these figures at face value. So my thinking is that Uncle Sam and his minions will be able to do nothing to stop the US dollar from losing its world reserve status. The BRICS are not Iraq or Iran. Even Iran is an impossible nut for the west to crack since there is no way there is going to be an Iraq style invasion due to the much larger size and military capability of Iran compared to Iraq. Bunker busters will not do much either. Trying to bomb Iran back into the stone age will fail as well since Iran has surface to air missile systems that will actually bring down US jets and not some junk from the sixties.

[May 15, 2010] The End of GDP

May 15, 2010 | The Big Picture

There is a longish article on the value (and misuse) of the GDP stats in the Sunday NYT magazine. The author lays out the case that the US will, over the next few years, supplement or perhaps even replace GDP as the ultimate measure of economic growth.

In its place? Several 100 metrics that measure all manner of other factors, both quantitative and qualitative.

This is intriguing, for numerous reasons. First, of all the official economic data points the government releases, GDP is the easiest to game - you simply under-report inflation, and GDP appears to be better than it is. And ever since the Boskin Commission's misbehavior (I call it a cowardly theft from the elderly), we have been dramatically under-reporting inflation data. Hence, we have nearly two decades of bogus GDP data in the can.

Second, and perhaps more significantly, GDP simply measures how much stuff we produce, buy and sell, and the folks we hire to make that stuff. It ignores all manner of other elements that go into that process.

I am not suggesting that GDP is a valueless measure (at least, if it were somewhat more accurate). But it is woefully incomplete. And the impact of making policy towards GDP has had very specific, corporate benefits. If we were to incorporate other more human factors, the net result could be quite substantial.

I wonder if we might see some sort of a pushback on this, especially from the Randians and Chicago-ites.

Regardless, it is a worthwhile topic to think about, if you are at all interested in how the government deploys its substantial resources into the economy.

Here is an excerpt:

"Whatever you may think progress looks like - a rebounding stock market, a new house, a good raise - the governments of the world have long held the view that only one statistic, the measure of gross domestic product, can really show whether things seem to be getting better or getting worse. G.D.P. is an index of a country's entire economic output - a tally of, among many other things, manufacturers' shipments, farmers' harvests, retail sales and construction spending. It's a figure that compresses the immensity of a national economy into a single data point of surpassing density. The conventional feeling about G.D.P. is that the more it grows, the better a country and its citizens are doing. In the U.S., economic activity plummeted at the start of 2009 and only started moving up during the second half of the year. Apparently things are moving in that direction still. In the first quarter of this year, the economy again expanded, this time by an annual rate of about 3.2 percent.

All the same, it has been a difficult few years for G.D.P. For decades, academics and gadflies have been critical of the measure, suggesting that it is an inaccurate and misleading gauge of prosperity . . . In the U.S., one challenge to the G.D.P. is coming not from a single new index, or even a dozen new measures, but from several hundred new measures - accessible free online for anyone to see, all updated regularly. Such a system of national measurements, known as State of the USA, will go live online this summer. Its arrival comes at an opportune moment, but it has been a long time in the works. In 2003, a government official named Chris Hoenig was working at the U.S. Government Accountability Office, the investigative arm of Congress, and running a group that was researching ways to evaluate national progress. Since 2007, when the project became independent and took the name State of the USA, Hoenig has been guided by the advice of the National Academy of Sciences, an all-star board from the academic and business worlds and a number of former leaders of federal statistical agencies. Some of the country's elite philanthropies - including the Hewlett, MacArthur and Rockefeller foundations - have provided grants to help get the project started. "

That's your weekend homework assignment . . .

Selected Comments

tamesthyena:

The US moved from GNP to GDP when those pesky Exports-Import accounts started going negative in the early Eighties. The US authorities then encouraged the IMF to rebase their Purchasing Power Parity adjustments at the core of making real international economic comparisons when the Nominal GDP numbers using regular Dollars started to make the Chinese economy look too large for comfort two or three years ago.

Now they are focusing on what, Happy National Production as the measure for economic performance? These adjustments are to clear thinking macroeconomics and policy making what Pro Forma earnings are to Accurate Accounting and investing; they initially intentionally delude the public, and end up softening the blow of relative economic decline

riverra:

Progressive and environmental economists have long recognized that GDP is a grossly inaccurate measure of how well we are doing economically. Principal reasons are that it counts a lot of "bads" as well as "goods"- anything that generates cash flow (e.g. money spent on cigarettes) and externalizes (does not count) a range of negative externalities that arise from economic activity (e.g. pollution produced when we import goods on container ships).

One of the original alternative measures to gain traction was the Index of Sustainable Economic Welfare (ISEW), which is similar to the later Genuine Progress Indicator (GPI).

Here is a link to info about the latter, including its theoretical foundation:
http://en.wikipedia.org/wiki/Genuine_Progress_Indicator

VennData:

Let's get Michael Boskin on it. He did such a great job on CPI…

http://www.ssa.gov/history/reports/boskinrpt.html

…and then blame Clinton for it…

http://www.shadowstats.com/article/consumer_price_index
http://seekingalpha.com/article/7061-beware-of-core-rate-hypnosis-pre-clinton-cpi-shows-7-inflation-etf-gld
http://www.thefinancialhelpcenter.com/Economy/Inflation-the-Big-Lie.html

etc… etc…

The Curmudgeon:

The problem with measuring GDP cuts to the heart of what an economic system is for. Presumably, economic systems exist to maximize the welfare of their participants in some way. Whenever GDP is mentioned intelligent analysis should necessarily include what the GDP level means for per capita income and then how that income is distributed. Otherwise, you just get an abstract, meaningless number.

When China takes the top GDP spot in the world in the next few years as it surely will, its people will still, on average, be far less well-off than the US, Japan, and most every other developed economy on the basis of both per capita income and the distribution of that income among its people.

alfred e:

Ouch! I still sting from how Clinton and Boskin raped America for the federal government's benefit. CPI my ass.

Once I have that recalled I am off-base and beyond logic.

It just all becomes more unbelievable every day. And we get to eat it.

mgkurilla:

It's even worse than merely comnig to grips with a realistic and honest GDP figure. Currently GDP makes no effort to evaluate the sustainability of the growth. All the low interest rate credit inducing growth earlier in the decade was worse than unsustainable, it was metastatically toxic to everything else.

In addition, we don't distinguish between GDP contributors that are functionally merely extractive based generators of GDP (like GS) versus the truly growth promoting activities. If you pay to tear down an eyesore in a city, you contribute to GDP. But there's a difference if you stop there versus doing something economically useful with that location.

Health care is another component that can go either way. Spending 25% of our health care dollars on the last 6 months of life is not going to produce returns down the road. This is why there is usually a disconnect between main street and wall street.

ezrasfund:

GDP is a very crude measure, indeed. Yesterday's computer, slow and expensive, added more to GDP than today's much faster and cheaper device. The NYTimes I read today online, updated every few minutes, adds less to GDP than the paper that was printed, distributed and sold. That unnecessary surgical procedure adds more to GDP than a wellness program. That auto accident resulting in a totaled car adds more to GDP than a safe trip.

Our pursuit of GDP has gotten us a lot of things we don't need, including plenty of financial services, lots of expensive medical procedures, and some houses in AZ.

Moss:

Well stated ezrasfund.

The existing GDP measure always puts emphasis on more quantity with no real measure of feedback loops either positive or negative. Energy efficiency, clean air or water, safety, health…. Eating less will reduce GDP but probably go along way to having a healthy population and a much less expensive health care system.

Joseph Martinez:

Since the hegemony forces are behind the 'State of the USA' that is the overpaid all-star board from the academic and business world and some of the country's elite philanthropies just how accurate can it be?

As part of the middle class I have seen the middle class real income increase 0% in the past ten year and have watched that the income of the people that are behind the 'State of the USA' increase 100% to 1000%.

I can't take any prudence in the report. I know that the USA status in the world is in question but to have another report out moving numbers around again is not what we need.

evans:

Best argument against GDP per capita as a measure of comparative well-being is the position of Ireland in OECD or World Bank tables.

One only has to spend a few days traveling around there to realize that its "wealth" is illusory (as we are now discovering).

Even back in 2007 when it was flying, it was a "poor" country: crappy houses; crummy public infrastructure; and–not that it counts in these figures– a provincial and derivative culture.

The fact that it scores higher than Canada, Denmark, or Germany says it all.

1 Luxembourg 78,559
- Macau 59,451
2 Norway 58,141
3 Singapore 49,288
4 United States 46,716
5 Ireland 44,195
- Hong Kong 43,922
6 Switzerland 42,534
7 Netherlands 40,850
8 Austria 38,153
9 Sweden 37,383
10 Iceland 36,770
11 Denmark 36,604
12 Canada 36,444
13 Australia 35,677
14 Germany 35,613
15 United Kingdom 35,445
16 Finland 35,426
17 Belgium 34,493
18 Japan 34,099
19 France 34,045

World Bank GDP p.c. (PPP) 2008

Actually, GDP overstates national well-being. From the point of view of anyone who works for a living, the GDP is nearly irrelevant. Since the start of the 80s, an hour of work has meant less and less in terms of per-capita share of the GDP. That is, the GDP has grown, and it has grown faster than the population, but working an hour gets you less and less of it. If you look at the current recession, which has supposedly ended because the GDP is rising again, then you can see the disconnect is complete. GDP can rise all it wants, but your hour of work will get you no more, and that's assuming you can get an hour of paid work.

MikeinNOLA:

"Ezrafund has it right…moreover, the existence of a GDP stat gives positive feedback to the Keynsian babboons who think that juicing the number with QE or stimulus number is the equivalent of a recovery….They don't seem to get the difference between cause and effect: a good economy will produce a good GDP, but having a good GDP doesn't mean you have a good economy."

Ezrafund does indeed have it right. Same point I was trying to make, but in a less verbose and more direct fashion.

I think MikeinNOLA misinterprets the potential of Keynesian stimulus though.

To be sure, shoveling borrowed money into the economy without proper analysis of true costs and benefits can easily exacerbate problems with mindless GDP growth that alternative measures of economic well-being are designed to account for. But if stimulus money is spent on sustainability-oriented infrastructure such as mass transit, greater energy efficiency, etc. per capita economic well-being may very well increase over the longer term.

In other words, whether or not Keynesian stimulus spending makes sense depends to a great degree on what the money is being spent on or invested in. Analytical tools such as ISEW and GPI are intended to facilitate better decision making about precisely these kinds of issues.

markwax:

"Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. . . .

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile.

And it can tell us everything about America except why we are proud that we are Americans." Robert F. Kennedy, 1968.

Mike in Nola:

riverrat: You from NOLA, too?

Although, I can't claim an extensive knowledge of Keynes theory, it seems mostly to prescribe deficit spending during recessions. I don't count what you describe as really Keynsian; it's just common sense spending that might do some good along the way and probably should have been started even when we didn't have huge deficits. As long as we are having to pay extended unemployment, we should have a new WPA, not just thowing money at states to support the same old bureaucracies that employ many administrators who don't really produce anything.

[Mar 01, 2010] Inventories Don't Kill Growth - People Kill Growth by Robert P. Murphy

Mises Institute

Mises Daily: Monday, March 01, 2010 by Robert P. Murphy

The most destructive ideas in academia are those that are technically defensible but nonetheless encourage erroneous intuitions. In economic science, a prime example of such a destructive idea is GDP accounting. As the recent punditry on the "inventory blip" of the fourth-quarter growth figures perfectly illustrates, the mainstream macro framework leads us into absolute absurdity.

The GDP Hall of Shame

In previous articles, I have pointed out that the familiar GDP accounting tautology, Y = C + I + G + X, is technically correct, but leads many economists to abuse the equation and in the process make horrible policy recommendations.

For example, it is this typical macro framework that leads our financial press to assume that saving is bad because consumer spending "is responsible for" so much of the economy. The national-income tautology also recently led Paul Krugman - who won the Nobel for his work on international trade theory - to (apparently) commit a basic mercantilist fallacy in a quick blog post.

GDP and Inventory Adjustments

Before we dive into the latest confusion, let's review the theoretical relevance of changes in inventories when it comes to calculating GDP. First of all, remember that Gross Domestic Product tries to measure the total amount of finished goods and services produced during a particular period (typically three months or a year).

In practice, the Bureau of Economic Analysis (BEA) estimates how much consumers, businesses, government, and foreigners spent on finished goods and services (made in the country) during the period in question. Let's say it was $10 trillion. Then, the BEA looks at the change in the value of inventories during the period. So if inventories started out at $500 billion and ended up at $400 billion, then inventories fell $100 billion.

Now the last step is to adjust the "final demand" figure by the change in inventories. In our case, the $10 trillion in total purchases must be adjusted to only $9.9 trillion in new production during the period, because $100 billion of those purchases were fulfilled by drawing down inventories.

So yes, those goods were produced within the country and contributed to GDP, but they did so in a previous period and were already counted in an earlier GDP figure. It would be double counting the same production if we included $100 billion of output

  1. when a business "invested" by buying the newly produced output and throwing it in the warehouse and then again
  2. when the retailers moved the goods from the warehouse and into consumers' houses.

So far, so good. Setting aside the severe conceptual and data problems for GDP estimation, it is an obvious refinement to look at changes in inventories to better isolate how much "stuff" was actually produced in a certain period, as opposed to how much stuff was purchased.

The Economists Make a Mess of Things

Even though technically the inventory adjustment makes sense, in practice economists botch things horribly. (We do this a lot.) Recently, when the GDP estimates for the fourth quarter of 2009 came out, many cynics dismissed the 5.7 percent "headline figure" as being mostly an "inventory blip" or an "inventory bounce." Although he was not alone, AEI economist Kevin Hassett was the most forceful I saw on the topic, so it's worth quoting from his Bloomberg article:

When is quarterly gross domestic product growth of almost 6 percent bad news? When it looks like what was reported last week.

US GDP increased 5.7 percent at the end of last year, with more than half of that growth - 3.4 percent - attributable to changes in inventories. This astonishing impact of inventory has ample historical precedent, and the bottom line has terrible implications for 2010.

Inventories are a remarkable corner of the economy. They are the goods and materials that companies keep on hand to make sure that their operations run smoothly. They are the boxes of food on shelves at the grocery store and the bins of metal parts sitting next to the assembly line in a manufacturing plant.…

Inventories are even more important during recessions. In [a] paper, co-authored with Louis Maccini in 1991, [Alan] Blinder found that 87 percent of the decline in GDP from the peak to the trough of the recession was attributable to inventories.…

Since 1970, there have been nine quarters, like the last one, when GDP grew by at least 3 percent and inventories accounted for at least half of that growth. The history of those quarters is hardly a favorable sign of what is in store. (emphasis added)

First, let us note the familiar problem with relying on conventional GDP calculations. Hassett talks as if inventories themselves have some power to steer the economy, as opposed to the human choices underlying changes in inventories. It's a bit like saying 87 percent of fevers can be attributed to thermometers.

But when it comes to the discussion of last quarter's GDP figures, the focus on inventory changes is particularly perverse. I bet those readers who don't already know the answer would have been quite confident after reading Hassett's article that inventories rose in the fourth quarter.

After all, it would make sense for someone to say, "Sure, production was up 5.7 percent in the 4th quarter of 2009 compared to its level in the 3rd quarter. But that spike in output is unsustainable, because 3.4 percentage points of the growth went right into warehouses. It's not as if the final consumers picked up their spending by the full 5.7 percent."

As I say, the above reasoning would be problematic because it presumes that spending green pieces of paper is the ultimate source of prosperity, but besides that, it would make a certain sort of sense.

Yet that's not what happened in the fourth quarter of 2009. No, inventories fell, as the BEA's press release makes clear:

Real gross domestic product - the output of goods and services produced by labor and property located in the United States - increased at an annual rate of 5.7 percent in the fourth quarter of 2009.…

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE.…

The change in real private inventories added 3.39 percentage points to the fourth-quarter change in real GDP after adding 0.69 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second. (emphasis added)

The BEA's press release is a testament to the Orwellian nature of GDP accounting. An innocent person would have every reason to assume that phrases such as "positive contributions from private inventory investment" and "an acceleration in private inventory investment" meant that inventories rose in the fourth quarter. But, as the press release says, inventories actually fell by $33.5 billion.

What's really strange is that the change in inventories was fairly small. So the real "contribution" was not even the change in inventories, but the change in the change. In other words, we have moved the analysis one more step into absurdity by explaining the creation of real goods and services by referring to the second derivative of something (inventories) that does not have the power to create goods and services.

A Numerical Illustration of the Absurdity

I have tried to spell out my frustration with the typical handling of GDP inventory accounting to my colleagues, and yet the sharpest of them were nonplussed to say the least. But I hope that the following numerical example will show quite convincingly just how crazy the techniques that I've described above are.

Suppose we have an economy with the following characteristics:

Year

 Starting Inventories Ending Inventories Final Purchases

GDP

 GDP Growth
2010 $1 trillion $1 trillion $2 trillion $2 trillion N/A
2011 $1 trillion $0 $2 trillion $1 trillion −50%
2012 $0 $0 $2 trillion $2 trillion +100%

Of course, the numbers above are completely unrealistic, but they can illustrate the knots we tie ourselves in when worrying about inventories.

First, let's make sure we understand the cells in the table. In 2010, inventories didn't change, and so the only way people could consume $2 trillion in purchases of finished goods and services is if that output were actually produced during 2010. Hence GDP is also $2 trillion.

Things are different in 2011. People still bought $2 trillion worth of total stuff. However, only half of that was newly produced in 2011, because the other $1 trillion was taken from the inventory stockpile. That's why GDP fell in half, down to $1 trillion.

In 2012, people once again spent a total of $2 trillion on finished goods and services. Since inventories didn't change during the year, obviously these purchases were consummated through entirely new production during the period. Hence, GDP rose back up to $2 trillion for the year, a 100-percent increase over the previous year's level of output.

Now in this context, look at what someone like Hassett would be forced to say after the 2012 number came out: "Sure, the BEA and the press are running around celebrating the ostensible doubling of real output in 2012. But if you dig into the numbers, you see that fully 100 percent of the growth is attributed to the $1 trillion acceleration in private inventory investment. If we net out the contribution of inventories to GDP growth in 2012, we see that growth was zero. We should be prepared for a double dip in 2013, after this one-time blip of statistical GDP growth."

I hope the reader sees just how nonsensical this type of analysis would be for the table above. In what possible sense did inventories "contribute" to GDP in the year 2012? Inventories didn't even exist at any point in 2012. They were $0 at the beginning of the year, and $0 at the end of the year.

What happened is that people spent $2 trillion buying stuff, and workers took raw materials and other inputs and transformed them into $2 trillion of real output. This was twice as much as the same workers physically produced in 2011. So how in the world does an "inventory adjustment" - from $0 to $0 - cancel out that doubling of physical production?

Furthermore, is it really true that we need to worry about real GDP falling off a cliff after such a huge "inventory bounce"? After all, final demand has been steady at $2 trillion for three years straight. And even if entrepreneurs got spooked again and wanted to draw down inventories to satisfy their demand in 2013, they can't - there are no inventories to draw down.

It's true that someone like Hassett could point out that the growth of GDP was bound to collapse, but so what? There would have presumably been huge unemployment in the year 2011, as half of the economy's productive resources sat idle. Yet in 2012, all those resources would be back in normal operations. Those workers, tractors, drill presses, etc., wouldn't have any reason to see their usage dwindle in 2013, despite the massive "inventory contribution" to GDP growth in 2012.

In fact, to the extent that businesses want to rebuild their inventories in 2013 to give themselves a buffer greater than $0, workers will need to put in extra shifts. Under any reasonable standard, the situation of inventories in 2012 would lead us to expect GDP and employment growth in 2013. It's true, there would be a drop in the growth rate of GDP, but workers care more about their hours than they do about second derivatives of arbitrary magnitudes.

Conclusion

The textbook GDP equation is not false; it is a tautology and so of course it is true. Nonetheless, it is a destructive framework for thinking about macroeconomic events. Abuse of the equation leads economists and pundits to blame savings and praise reckless consumption, to hate imports and love exports, and (in principle) to attribute a doubling in the flow of goods coming out of factories to a nonchange in the level of a nonexistent stock of inventory.

Hassett and others are right to doubt the strength of our alleged "recovery." I think that the economy is currently held together by bubble gum and Ben Bernanke's charm. But to explain our economy's fragility, I would analyze the government and the Fed's policies. A slowdown in the fall of inventories per se is not a warning sign at all. If anything, it is a signal that businesses are becoming more optimistic.

Robert Murphy, an adjunct scholar of the Mises Institute and a faculty member of the Mises University, runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, the Human Action Study Guide, and The Politically Incorrect Guide to the Great Depression and the New Deal. Send him mail. See Robert P. Murphy's article archives.

Comment on the blog.

[Dec 28, 2009] How not to solve a financial crisis by Edward Harrison

Dec 28, 2009 | nakedcapitalism.com

kevinearick

This caused a bit of an uproar over at the NYT:

GDP, Deficits, Law, & Outcomes

Deficits measure maladaptive behavior, the failure to effectively save, and invest in future viability, to maximize NPV and induce growth. Capital is in trouble because it failed to invest in the future, and the current policy of infinite monetary policy (see Freddie and Fannie) is to accelerate the short, now that the future, demographic deceleration, is here.

There is no way to measure I because capital borrowed from the future to create "earnings" as the basis for borrowing again, compounding the error, to magnify C, supplying artificial demand abroad to create global dependency, increasing self-interested G to process the transactions.

I, C, & G are all artificial, because GDP never measured economic profit; it measures economic activity, maximizing borrowing from the future to pay increasingly irrational, maladaptive costs, to bail out capital – eliminating the path to the future.

Healthcare is classic, 20% of the economy to subsidize maladaptive behavior, created by the ponzi capital pyramid between producers and consumers in the food chain, a problem that would quickly solve itself if the structural subsidy to capital were removed.

Monetary policy is being employed to create artificial scarcity, social demand, to re-enforce non-performing capital and the government serving it.

The constitution was designed to protect the majority from these self-liquidating circumstances. Shorting the constitution with family law terminated savings and investment, doubling down on debt and consumption, in a too-big-to-fail strategy, that always fails. Capital had a going-away party.

The US Supreme court, on the vote of a handful, removed the evolutionary lead of natural new family formation, discharging the middle class battery to ground, capital.

Capital breeds on the laws of property. Labor breeds on the laws of physics. They had an agreement to grow a semi-neutral middle class. Capital broke that agreement under the false assumption that its global economy was the only "game" in town. Labor is protected by its relationship with evolution, and always has access to ground, alternative capital.

The point in developing the Internet was to make the process transparent. The dismantling of the USSR was just a beta test.

The dinosaurs were a sunk cost. Everyone clutching non-performing assets may want to make a new years resolution, or continue partying. Titration is nearly complete, non-performing capital is turning to salt, and social evolution is about to accelerate again.

Now, we watch as the municipalities are pushed over the cliff, as the momentum of global implosion hits American shores, but at least the feds got a big pay raise for putting the states and municipalities at the edge of the cliff first, to buttress themselves.

[Nov 17, 2009] Feldstein- House Prices to Fall Further

patientrenter:

"Thrift in the long run is a very good thing, but increasing thrift as you come out of a recession is going to be a drag." "

Most economists focus on increasing our GDP. They understand its limitations, but after 20 or 30 years of measuring how good an economic policy is by how much it increases GDP, they tend to forget the limitations in their daily work. So when a recession comes along, the reaction is reflexive - the recession decreases measured GDP, and that is bad, so do whatever is necessary to reverse that, setting aside longer-term considerations.

Martin Feldstein is very smart, but he has been completely captured by the always-increase-GDP-at-all-costs faith common amongst professional economists. This is not healthy. It's like identifying hunger as a problem that must be eliminated at all costs. For truly starving people, the resulting actions are great and good. For middle class Americans going from lunch to dinner, it's unhealthy to keep feeding them snacks so that they feel no pangs of hunger.

The recent financial scare and economic recession was a signal that we were doing some things wrong. What we need now is a recognition of what we were doing wrong, and public decisions on the changes. That might result in a decrease in measured GDP, but it would lay a solid foundation for a more productive economy for us all going forward. Instead we have people like Martin Feldstein calling for actions that return us to the old ways, because measured GDP was higher then. Nuts!

[Nov 15, 2009] Who's Afraid Of A Falling Dollar

"GDP and inflation are as baked as Ken Lay's books."

The Baseline Scenario

DavosSherman

Who should be how.

Also you might want to watch Chris's videos on GDP. You own a home and they say, well you'd pay 5k a month in rent. Even though you don't pay rent they DO add it to GDP.

GDP and inflation are as baked as Ken Lay's books.

You can fly your plane or drive your car and believe that you have a full tank, when your car runs out of gas and the realization that the gauge was busted sinks in it might not be a pretty sight if it is raining and night and cold and you have a little one in the car.

Best of luck folks, this site has been removed from my RSS reader. Deleted like CNBC's. Gosh, I can still hear Maria's voice. Ughh,.

[Nov 15, 2009] Krugman on the Need for Jobs Policies

naked capitalism

Yves Smith:

American GDP figures are wildly distorted, this has never gotten the press it deserves. The US is the ONLY economy that uses hedonic adjustments to GDP. That means it increases GDP to allow for the fact that computers have become more productive over time (this is completely different than the hedonic adjustments for inflation, BTW).

A modern desktop computer is about as powerful as a mainframe as of late 1980s. So I kid you not, these adjustments started in 1987, and they count you desktop in GDP as the same value what the equivalent big iron computer would have cost in 1987. Mish managed to get the BEA to send him a spreadsheet in 2005, and it showed the cumulative impact was 22% of GDP. This is far and away the most dubious of the official statistical adjustments, and gets far and away the least commentary.

The Bundesbank has also complained a few years ago that if German calculated GDP the way the US did, it's growth rate would be a half a percent higher. If you take the Bundesbank figure instead, and calculate GDP growth over 22 years, using 2.5% versus 3.0% growth, you get an 11% cumulative difference.

[Oct 30, 2009] Rosenberg On A Flat Normalized GDP Number

zero hedge

Yesterday, the market moved on what was the double whammy of the government's own rather fluid favorable interpretation of what was essentially the government's very own stimulus. Yet others can play, and unwind, the number fudging game too. According to David Rosenberg, absent the now declining impact of the massive governmental stimulus, GDP would have been flat if not negative. So much for bickering over whether GDP was 2.7% or 3.5%: at the end of the day, on a normalized, non-stimulus inflated basis, GDP was flat, and if the equity market cared about isolating non-recurring items such as excess government spending driving a collapsing economy, the stock market reaction would have been quite the opposite.

From Rosenberg:

Never before did a gap between a 3.2% consensus GDP forecast and an actual print of 3.5% manage to elicit so much excitement in the equity market. It just goes to show how speculative the stock market has become. The question is why it is that the economy couldn't do even better?

Historically, the auto sector adds 0.1 percentage point or 0.2 percentage point to any given GDP report. In the third quarter, courtesy of cash-for-clunkers, the sector added 1.7 percentage points to the headline figure, which is less a than 1-in-10 event in terms of probabilities. Tack on the rebound in housing and government spending and the areas of GDP that received the most medication from public sector stimulus contributed almost all of the growth in the economy. You read this right. If not for all the government incursion into the economy in Q3, real GDP basically would have stagnated.

Because of the housing and auto subsidies, the personal savings rate plunged to 3.3% in Q3 from 4.9% in Q2 - in the past quarter-century, there have been only four other times that the savings rate went down so much in one quarter. If not for that plunge in savings, real GDP actually would have contracted fractionally last quarter. The entire GDP growth was funded by a rundown in the savings rate that occurs less than 5% of the time.

Moreover, what is normal in that first positive post-recession GDP release is a 5% annual rate of growth. That puts 3.5% in Q3 into a certain perspective, especially when you consider the massive amount of stimulus that underpinned the latest batch of data.

What is normal in this first positive post-recession GDP release is a 5% annual rate of growth, not 3.5%

The parts of the economy that did not receive government support didn't fare too well in the third quarter. For example, total business spending (on structures, equipment and machinery) actually contracted at a 2.1% annual rate - the fifth decline in a row. State and local government spending also fell at a 1.1% annual rate. Since there was no cash-for-clothing program, spending on apparel slipped at a 1.5% annual rate. The economists had all been talking about an inventory cycle taking hold and yet there was an additional $130 billion of de-stocking in the third quarter.

a critical question that nobody seems to be asking: how are companies reacting to this presumed economic rebound? If CapEx, inventories and lending, corporations are the only ones who seem to be willing to think about the facts behind the hype:

The question has to be asked, if companies, both non-financial and financial, are big believers in this new post-recession V-shaped recovery that seems to have the hedge funds and most strategists excited, why are companies still cutting back in capital expenditures and inventories and why are banks still cutting back on lending at an unprecedented 15% annual rate.

David concludes with a point that he tried to highlight on Fast Money yesterday, if only he wasn't caught up in futile debates over trivial data points:

While it seems very flashy, 3.5% growth is far from a trend-setter. Let's go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters. That is almost 25% of the time, by the way. And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak. What is important for the future is whether the U.S. economy can manage to sustain that 3.5% growth performance in the absence of ongoing massive government stimulus. In other words, it may be a little early to uncork the champagne.

From our lens, the big risk going into Q4 is a renewed contraction in real final sales. That is not priced into the various asset classes right now.

For more relevant economic observations, Rosie's morning piece is a captivating read.

Daedal

Indeed... until that can falls off a cliff. This 3.5% GDP growth is a debt-financed fiasco. The detriment is not only that this GDP growth is unnatural and likely temporary, but that future (natural) growth in GDP will be gutted by the Gov/Fed so that they can service the outstanding debt responsible for this current 'growth'.

chindit13

If we can believe this recently released Q3 GDP figures---and why would a rational person ever question an official government statistic---then Ben Bernanke is dead right:

HE SAVED THE WORLD.

Those pundits on the tube can talk all they want about China's miracle growth or how industrious Asia will lead the world out of this economic mess, but according to the numbers---and numbers don't lie---the US is the one leading the Chuck Prince "I'm Still Dancing" Two Step, and the rest of the world is just along for the ride.

How, you may ask...and ask you may. Given the relative sizes of the world's economies, just this third quarter surge in the US brought to you by C4C, residential short sales, iPhones, Kindles, pawn shop and bankruptcy lawyer receipts represents more of an addition to World GDP than all the growth of all Asian economies combined, including the glorious Middle Kingdom and its 8.8888888%, M3 driven, comrade-can-you-spare-me-a-loan, Cha-shu balls-to-the-wall supergrowth. So much for the Pacific Century eh? Pikers, they are.

Who would have thought, oh ye of little faith and even less credit, with all that unemployment, all the boarded up storefronts, empty shopping malls, and Goldman Sachs partners purposely refraining from ostentatious displays of their spending ability, we could have kicked the butts of copper-hoarding Chinese pig farmers nine ways from Tiananmen Square.

Somehow, in spite of the constant stream of gloom and doom permeating from every sociopathic blogger this side of Sofia, the Great Machine of American Consumption ( the new GMAC) found a way to churn out 5.5 Goldman Sachs Bonus Pools (a new international unit of measurement on course to replace the metric system) worth of brand spanking new growth that wasn't there before, or at least wasn't there in Q2 (and may not be there when revision time comes).

Yes, those 306 million plucky Americans generated almost as much new growth in a quarter as five guys in AIG Financial Products Division lost in Q3 last year. THAT's getting it done! Slackjawed I am, and I hereby apologize to my least favorite deli counter trio BLT (Ben, Larry and Timmy) for being a wag and calling this the Growthless Recovery. Instead I'm calling it as I see it: the Potemkin Recovery.

Anonymous

Used to be that the wealthy in this country were steel magnates, owners of mining concerns, hoteliers, railroad tycoons, industrialists.

It has become the 2/20 hedge fund managers that have taken their place. Running a warehouse full of quants with a dollop of industrial espionage to play buy/sell with paper and electronic IOUs.

All the while that is funded by pension funds, 401K, trust funds, little sums set aside which must be "invested" to stay ahead of the time deterioration thanks to the Fed's inability to preserve the storage value of the currency.

Those little nickle/dime returns helped to salve the fear that the ponzi investors really weren't that deeply into "risk". Until the bottom fell out, gov't reared its ineffective and complicit head, and the private central bank showed extreme partiality in dispensing economic injustice upon the peon classes.

The great wake up occurred. The push is for people to divest from the paper trade, to take greater steering power over their retirement portfolios, and to step back from risk taking (now seen as pure loss making).

The capital markets have lost all legitimacy. The money flows will continue to be out especially as we witness Fed machination on one hand, and gov't arbitrary stimulus on the other.

With the excess being squeezed from the system, peon withdrawals, and leverage multiples being pulled down, the finance sector (though on a dope high at present) faces a bleak future.

Do they think they can create another quick generation to con into the parlour games?

Game over. Lights out.

[Sep 23, 2009] It's the debt, stupid

naked capitalism
Submitted by Edward Harrison of Credit Writedowns.

Let's say I run a company. For the sake of argument, we'll call it a shoe store in New York City. I am making $100,000 net per year now. But, I look around me and see huge opportunity for growth. So I go to my bank and ask for a loan to expand my business. I invest the money in expanding the store, and over the next five years I increase my earnings to $140,000. Not bad!

Is this a well-run business?

GDP is not enough

Well, if your first instinct is to say, "you didn't give me enough information," I would have to agree. But, this is the way GDP statistics are used to measure the success of an economy.

Clearly then, GDP is an inadequate measure for understanding how healthy an economy is. Nobel Prize-winning economist Joseph Stiglitz brought this issue into the public domain last week when he spoke in Paris, calling the focus on GDP a 'fetish' and favoring a broader measure of economic health.

Stiglitz was responding to reporters after a study on alternative measures of economic growth commissioned by French president Nicholas Sarkozy was released. At the time, Bloomberg reported Stiglitz saying:

GDP has increasingly become used as a measure of societal well-being and changes in the structure of the economy and our society have made it increasingly poor one…

So many things that are important to individuals are not included in GDP. There needs to be an array of numbers but we need to understand the role of each number. We may not be able to aggregate everything together.

Stiglitz is talking about the social costs of growth here. Think about pollution, infant mortality rate, healthcare, life expectancy, or rates of obesity to name a few. And his views are echoed in an article which prompted this tirade from me called "Emphasis on Growth Is Called Misguided" by Peter Goodman in today's New York Times. Read it.

However, in this post, I want to focus on one narrow issue: debt.

The income statement vs. the balance sheet

In the shoe store example I gave, I borrowed money to fund growth. In assessing how successful my growth strategy is, the obvious question is: how much did I borrow? It's the debt, stupid.

What if I borrowed $1,000,000 at 7% interest? $40,000 is a return of 4% on that money, less than the cost of debt. In that case, the growth strategy is a loser.

We need to see the balance sheet as well as the income statement to know what is happening. GDP gives us no insight into the balance sheet of an economy, and is therefore incomplete as a measure of economic health. (I'll leave the cash flow statement for another day!)

There is 4% growth sustained only through a rise in debt, growth that would have been 2% without an increase in relative indebtedness. And there is 4% growth fuelled by a positive return on that debt.

I am sure you have seen the graphs I published last October at the height of the panic in my post "Charts of the day: US macro disequilibria." What should be clear from those charts is that the U.S. has been living in a period fuelled more by increases in debt and a concomitant increase in asset prices than in a world of sustainable growth.

The economics profession focus on the income sheet only

I suspect the GDP fetishism owes a lot to the models currently in use in the economics field, which focus exclusively on an economy's income statement.

When I studied economics, in our introductory course, we used a book called "Economics – Principles and Policy" by two Princeton-affiliated professors William Baumol and Alan Blinder, a former vice chairman of the Federal Reserve (Yes, I still have the book from over twenty years ago). The only mention of debt comes in Chapter 15 on "Budget Deficits and the National Debt" and it is basically a discussion of trade-offs between budget deficits and inflation.

Nowhere are aggregate debt levels in the private sector mentioned. Now, I could be wrong because it is not in the index and I couldn't find it in the book. I see this is reflective of the absence of debt as a topic in economic theory taught in universities.

In fact, the Chapter just before is called "Money and the National Economy: The Keynesian-Monetarist Debate." I think the title says it all. Baumol and Blinder are Keynesians and they released a book to teach Economics in the Keynesian tradition. To the degree they discuss any other economic models, it is only to weave the monetarist view into their own framework. In the introduction of Chapter 14, the book states:

Then we turn to a very old and very simple macroeconomic model – the quantity theory of money, and its modern reincarnation, monetarism – for an alternative view of the effects of money on the economy. Although the monetarist and Keynesian theories seem to be two contradictory views of how monetary and fiscal policy work, we will see that the conflict is more apparent than real.

Now that crisis has hit, there is no inter-weaving of theories. Those two worlds, the monetarists (freshwater economists as Krugman calls them) and the Keynesians (saltwater economists in Krugman's parlance), are at war over economic theory's contribution to the global economic meltdown. The Economist laments:

Economic writers will continue to try and describe the arguments wracking the field for an audience which wants to know about them, but economists need to figure out how to resolve some of these questions on their terms. If the best the dismal science can do in establishing the merit of one position versus another is make a play for the hearts and minds of lay-people, then economics is in more trouble than we all thought.

More noteworthy for me is how the salt- and freshwater types completely disregard debt, an issue central to the Austrian and Minskyian schools of thought. Paul Krugman wrote 6,000 words focused only on the income statement. There was no mention of the huge rise in debt in the U.S. and other economies like the U.K., Spain, Ireland, Iceland or Latvia (I take up the issue of Latvia, Iceland and Hungary in the post that followed this at Credit Writedowns).

All of these countries have one common feature: asset price booms underpinned by rising debt levels. Let's hope we start seeing more discussion about the balance sheet in future.

fresno dan:

Very, very good point. But what is more interesting is that it is such an obvious point, yet economists give little attention to financing and debt. Money just appears and debts just get retired.
One hears talk nowadays as if the only trade off is between unemployment (under use of all resources) and inflation. Gee, am I the only dinosaur here? We had this thingy called stagflation in the 70's. Theoretically impossible. I imagine in a year or two the misery index will reappear.

Greg:

Following this argument to its conclusion, the US government should be borrowing where the ROI of the investment is likely to be significantly higher than the cost of the debt.

To take one particularly compelling example, spending on education has an estimated ROI of 10% annually.

http://www.cbo.gov/ftpdocs/91xx/doc9135/AppendixA.4.1.shtml

The US government can borrow money at 4%.

WH:

Ummm… Let me know if I am misreading this or am thinking about this wrong, but I think you are mistaken. This growth strategy is a winner.

Do you mean "net income" or EBITDA, here?
If it is net income, then, then interest is deducted.

That means that the return on the $1 million is 11% =
($70k interest + $40k net income)/$1 million.

The return is greater than the cost of capital. This investment has a positive NPV and a good ROI. It is a very good growth strategy.

This can also be looked at as a annual increase in expenses of $70k produced an additional annual revenue of $110k. That is a 57% return.

Edward Harrison:

This isn't an exercise in measuring return on capital of a fictitious shoe store WH. That is irrelevant and is merely for illustrative purposes. But, if you must go there, you will notice I said "$100,000 net per year now." That's net, not gross. Assume that is EBITDA.

Jeff Ellerbee:

Dude, do you even have an advanced economics degree? Saltwater/freshwater isn't about monetarist/keynesian (even in Krugman's parlance). Please stop posting about topics you haven't researched thoroughly–especially academic macroeconomic theory. For your kind information, Minsky is a neo-Marxist (qua Marx as critique of Capitalism; shorter version, "Capital tends to Crisis"). And Austrian is just both dead wrong (with respect to what actions should be taken in this environment) and a political non-starter for a number of reasons. Honestly, Keynesian is about counter-cyclical fiscal policy and maintaining stability in long-run aggregate supply. Please, please get a clue outside of some Economics 101 textbook.

Edward Harrison:

Jeff, you are the one who needs to get your facts straight: http://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics

Edward Harrison:

I would also suggest you read a 1988 NY Times article by Peter Kilborn:

http://www.nytimes.com/1988/07/23/business/fresh-water-economists-gain.html

The difference between the schools is as you indicate, Keynesians see counter-cyclical fiscal stimulus as key to fighting recessions, while the freshwater types are more libertarian. Friedman believed money supply was the key to control over the economy and best represents the freshwater types along with Lucas.

Your label of Minsky as a neo-Marxist is just that, a label. The key difference between the neoclassicals and the Keynesians on one side and the Austrians and Minskyians on the other is the focus on debt.

steve from virginia:

When I studied economics, in our introductory course, we used a book called "Economics – Principles and Policy" by two Princeton-affiliated professors William Baumol and Alan Blinder, a former vice chairman of the Federal Reserve (Yes, I still have the book from over twenty years ago). The only mention of debt comes in Chapter 15 on "Budget Deficits and the National Debt" and it is basically a discussion of trade-offs between budget deficits and inflation.

Don't got no debt … don't got no energy, either!

Dozens if not hundreds of pieces of economic analysis are presented every day in academia, in the media and over the Internet. Energy is either not mentioned at all as an input factor … or is given backhand mention, only.

Consider two economies … separate but equal. The sexy, attractive finance economy gets all the attention. The productive economy upon which the sexpot entirely depends is falling apart due to mis- investment. Mainly, it is currently constrained by oil depletion against a backdrop of expanding – finance driven – demand.

When a big highway bridge falls, due notice is taken. Consider Cantarell oil field in Mexico: 2 million barrels per day at the peak of production with 1m bbls. exported to the US in 2003. Net exports will reach zero in two years, cutting revenue to the Mexican government and oil availability here.

The 500% increase in oil price since 1998 has had a destructive effect on the productive economy, masked/hedged against by the finance bubbles. Theoretically, the Fed can monetize all the US public and private debt. It cannot control or monetize oil prices. $70 oil is an economy destroyer which is working its evil right this minute.

Not just debt. Oil.

mikkel:

As I mentioned in another thread, Stiglitz is the only major economist I know of that has talked about resource utilization and how easy it is to spike the GDP in the short term by destroying the environment with over consumption, but leads to lower growth rates over the long term.

There's a reason he's marginalized.

Ishmael:

Mr. Harrison – I believe your point about debt and GDP is an extremely important one but the story is even worse than you portray. I have not worked through the computations but it appears to me that GDP is basically handled on a cash basis of accounting versus the accrual method and when money is borrowed it is added to the GDP and when it is paid back is a subtraction from GDP. Go out borrow money and the money is spent then GDP increases. Save money (or more accurately negatively borrow) and the money is removed from the system so we have a decrease in GDP.

For instance in your shoe store example, the individual borrows money to expand his store and spends it. This does not generate any additional income to the store right then but the general economy will get a lift from his additional spending. The next year, since there is no borrowing by the shoe store there will be a decrease in the economy.

The extra $40,000 of earnings impact is questionable for the store since we do not know as you pointed out what the debt service is for the expanded store. However, for the complete economy is it not really a zero impact because the positive for store was a negative elsewhere in the economy.

It seems to me that GDP should be shown net of the change of borrowing. Then the naturally sustainable level of GDP would be shown.

In truth, for each country sustainable GDP would only be driven by exporting (assuming currency stays constant ie gold standard) or technology changes which would include the use of resources that would incorporate the oil reference above. Overall improvement of GDP for the complete world on a per capita basis would only be driven by technology changes.

In the US if we subracted incremental increases in debt each year from GDP we would have had a declining GDP.

The funds flow statement bridges the balance sheet and the income statement. The current GDP number seems to be fixing funds from operation with funds from financing. This would be very misleading statement for a company and seems to also be true for a country.

[Sep 14 2009] Gross domestic embellishments

"...GDP is riddled with imperfections. It only covers production exchanged in the private market or the public sector and misses the vast amount of productive activity inside the household, such as family care for children and the elderly. Ignoring sustainability, GDP is boosted by resource depletion that may increase income today but lower it in the future: a form of destruction more than production."
September 14 2009 | FT.com

Nicolas Sarkozy, president of France, is concerned that gross domestic product, the most popular yardstick of economic performance, does not capture how well societies (in particular, no doubt, France) are doing. Suspicious observers may think he set up his commission on measuring "social progress" mainly to kick Anglo-Saxon capitalism while it was down. In fact, its report is full of sensible, if old, insights.

GDP is riddled with imperfections. It only covers production exchanged in the private market or the public sector and misses the vast amount of productive activity inside the household, such as family care for children and the elderly. Ignoring sustainability, GDP is boosted by resource depletion that may increase income today but lower it in the future: a form of destruction more than production.

[Sep 09, 2009] "Rethinking GDP"

"...Policies that promote job growth ultimately generate GDP growth; however, policies that promote GDP growth do not generate job growth. "
"...I would suggest term "Junk GDP" which like the term "junk food" reflects dubious or explicitly harmful for the society activities included in GDP.
For example excessive monetization of services harms the society (as rise of health insurance costs and university education costs in the USA can attest) but increases GDP.
I would suggest that the USA has the highest percentage of junk GDP among developed nations. May be higher then 30%. "
Sep 09, 2009 | economistsview.typepad.com
Joseph Stiglitz says we need better measures of economic performance:
Rethink GDP fetish, by Joseph E. Stiglitz, Commentary, Project Syndicate: ...Eighteen months ago, French President Nicolas Sarkozy established an international Commission on the Measurement of Economic Performance and Social Progress, owing to his dissatisfaction - and that of many others - with the current state of statistical information about the economy... On Sept. 14, the commission will issue its long-awaited report.

The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens' own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximize it, but citizens also demand that attention be paid to enhancing security, reducing pollution, and so forth - all of which might lower GDP growth.

The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognized. But changes in society and the economy may have heightened the problems...

For example,... in one key sector - government - we ... often measure the output simply by the inputs. If government spends more - even if inefficiently - output goes up. In the last 60 years, the share of government output in GDP has increased [substantially]... So what was a relatively minor problem has now become a major one.

Likewise, quality improvements ... account for much of the increase in GDP nowadays. But assessing quality improvements is difficult. ...

Another marked change in most societies is an increase in inequality. ... If a few bankers get much richer, average income can go up, even as most individuals' incomes are declining. So GDP per person statistics may not reflect what is happening to most citizens.

We use market prices to value goods and services. But ... the ... pre-crisis profits of banks - one-third of all corporate profits - appear to have been a mirage.

This realization casts a new light not only on our measures of performance, but also on the inferences we make. Before the crisis, when U.S. growth ... seemed so much stronger than that of Europe, many Europeans argued that Europe should adopt U.S.-style capitalism. Of course, anyone who wanted to could have seen American households' growing indebtedness, which would have gone a long way toward correcting the false impression of success given by the GDP statistic.

Recent methodological advances have enabled us to assess better what contributes to citizens' sense of well-being... These studies, for instance, verify and quantify what should be obvious: the loss of a job has a greater impact than can be accounted for just by the loss of income. They also demonstrate the importance of social connectedness.

Any good measure of how well we are doing must also take account of sustainability..., our national accounts need to reflect the depletion of natural resources and the degradation of our environment.

Statistical frameworks are intended to summarize what is going on in our complex society in a few easily interpretable numbers. It should have been obvious that one couldn't reduce everything to a single number, GDP. The report by the Commission on the Measurement of Economic Performance and Social Progress ... should ... provide guidance for creating a broader set of indicators that more accurately capture both well-being and sustainability...

Elliot says...

When Keynes wrote "The General Theory" he focused on the economy reaching and maintaining full employment. Friedman led a shift away from that and pushed for a focus on the price level and growth.

We need to return to a focus on full employment.

The statistics we use are often misleading (inflation has been a particularly misleading stat during the housing bubble), yet are used to justify and rationalize mere assumptions.

Policies that promote job growth ultimately generate GDP growth; however, policies that promote GDP growth do not generate job growth.

Government policies should focus on employing the maximum number of people possible. Job growth will ultimately yield way to a growing economy, in which the largest number of people partake in the prosperity and growth.

http://southpawpolitic.blogspot.com/2009/09/full-employment-vs-gdp-growth.html

Posted by: Elliot | Link to comment | Sep 09, 2009 at 11:33 AM

Beezer says...

Redefining progress has the GPI, genuine progress report.

http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm

"The GPI starts with the same personal consumption data that the GDP is based on, but then makes some crucial distinctions. It adjusts for factors such as income distribution, adds factors such as the value of household and volunteer work, and subtracts factors such as the costs of crime and pollution.

Because the GDP and the GPI are both measured in monetary terms, they can be compared on the same scale. Measurements that make up the GPI include:

Income Distribution

Both economic theory and common sense tell us that the poor benefit more from a given increase in their income than do the rich. Accordingly, the GPI rises when the poor receive a larger percentage of national income, and falls when their share decreases.

Housework, Volunteering, and Higher Education

Much of the most important work in society is done in household and community settings: childcare, home repairs, volunteer work, and so on. The GDP ignores these contributions because no money changes hands. The GPI includes the value of this work figured at the approximate cost of hiring someone to do it. The GPI also takes into account the non-market benefits associated with a more educated population.

Crime

Crime imposes large economic costs on individuals and society in the form of legal fees, medical expenses, damage to property, and the like. The GDP treats such expenses as additions to well-being. By contrast, the GPI subtracts the costs arising from crime.

Resource Depletion

If today's economic activity depletes the physical resource base available for tomorrow, then it is not creating well-being; rather, it is borrowing it from future generations. The GDP counts such borrowing as current income. The GPI, by contrast, counts the depletion or degradation of wetlands, forests, farmland, and nonrenewable minerals (including oil) as a current cost.

Pollution

The GDP often counts pollution as a double gain: Once when it is created, and then again when it is cleaned up. By contrast, the GPI subtracts the costs of air and water pollution as measured by actual damage to human health and the environment.

Long-Term Environmental Damage

Climate change, ozone depletion, and nuclear waste management are long-term costs arising from the use of fossil fuels, chlorofluorocarbons, and atomic energy, respectively. These costs are unaccounted for in ordinary economic indicators. The GPI treats as costs the consumption of certain forms of energy and of ozone-depleting chemicals. It also assigns a cost to carbon emissions to account for the catastrophic economic, environmental, and social effects of global warming.

Changes in Leisure Time

As a nation becomes wealthier, people should have more latitude to choose between work and free time for family or other activities. In recent years, however, the opposite has occurred. The GDP ignores this loss of free time, but the GPI treats leisure as most Americans do-as something of value. When leisure time increases, the GPI goes up; when Americans have less of it, the GPI goes down.

Defensive Expenditures

The GDP counts as additions to well-being the money people spend to prevent erosion in their quality of life or to compensate for misfortunes of various kinds. Examples are the medical and repair bills from automobile accidents, commuting costs, and household expenditures on pollution control devices such as water filters. The GPI counts such "defensive" expenditures as most Americans do: as costs rather than as benefits.

Lifespan of Consumer Durables & Public Infrastructure

The GDP confuses the value provided by major consumer purchases (e.g., home appliances) with the amount Americans spend to buy them.

This hides the loss in well-being that results when products wear out quickly.

The GPI treats the money spent on capital items as a cost, and the value of the service they provide year after year as a benefit. This applies both to private capital items and to public infrastructure, such as highways.

Dependence on Foreign Assets

If a nation allows its capital stock to decline, or if it finances consumption out of borrowed capital, it is living beyond its means.

The GPI counts net additions to the capital stock as contributions to well-being, and treats money borrowed from abroad as reductions. If the borrowed money is used for investment, the negative effects are canceled out. But if the borrowed money is used to finance consumption, the GPI declines."

Posted by: Beezer | Link to comment | Sep 09, 2009 at 12:07 PM

Arthur Fullerton says...

GDP measures activity, not benefit -- as such the problem is not so much the measurement of GDP as it is the meaning invested in the statistic. If we equate GDP growth with benefit and GDP decline with detriment, then we fall into the old trap of confusing means with ends.

Think of the GDP of an economy as being analogous to an engine's RPM. We do not confuse a car's RPM with its gas mileage or its creature comforts. Similarly GDP is not a measure of an economy's efficiency or efficacy.

Developing alternative measures and managing to maximize other outcomes is perfectly appropriate, but the shortcoming is not in the GDP statistic, rather it lies in how people misuse the statistic as a proxy for benefit.

Posted by: Arthur Fullerton | Link to comment | Sep 09, 2009 at 12:26 PM

SS says...

The United Nations Human Development Report: http://hdr.undp.org/en/reports/global/hdr2007-2008/
and Human Development Indicator (therein) do an excellent job capturing health, access to potable water, air quality and other indexes of a countries well being.

SS

Posted by: SS | Link to comment | Sep 09, 2009 at 12:50 PM

paine says...

ah joe

like ferdinand the bull..chasing butterflies

when he could toss giants on his horns

Posted by: paine | Link to comment | Sep 09, 2009 at 01:00 PM

William says...

Stiglitz made a big huff about "Green net national product (Green NNP)" in his book Making Globalization Work. Surprised he didn't mention it.

Posted by: William | Link to comment | Sep 09, 2009 at 01:59 PM

kievite | Sep 09, 2009 at 05:27 PM

It's pretty funny the cult of GDP was one of the most distinctive features of the USSR economic life.

For the US also serves as an economic fetish (especially for Fed and related agencies).

I would suggest term "Junk GDP" which like the term "junk food" reflects dubious or explicitly harmful for the society activities included in GDP.

For example excessive monetization of services harms the society (as rise of health insurance costs and university education costs in the USA can attest) but increases GDP.

I would suggest that the USA has the highest percentage of junk GDP among developed nations. May be higher then 30%.

Among most obvious candidates are FIRE, military-industrial complex, junk food industries, junk medicine, junk drags (aka big pharma).

Posted by: kievite | Sep 09, 2009 at 05:27 PM

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